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?
This blog is the follow up from ERP is dead.
If the imperative for ERP is to rise from its resource planning ashes to become an Enterprise Runtime Platform; how can organisations take that on?
The first order of business in that effort is to understand the concepts of Business Capabilities and related models. These connect strategy to execution. They can be described in clear business language: order-to-cash, build-to-order, procure-to-pay, record-to-report etc. Subsequently technologists can articulate how technologies and software solutions deliver the orchestrated and end-to-end implementations of the capabilities.
Skilled Enterprise Architects, business consultants and solution architects can describe the future state and roadmaps to grow from a current state towards that future. The meaningful dialogue at executive level on the business capabilities is essential for decisions on technology investments in a (digital) business world.
There is one refinement to add, as businesses change all the time, capabilities must be flexible to drive and follow change. Hence the use of the term Composable Business Capabilities.
At a high level a reborn ERP is a thorough modernisation and repackaging in Composable Business Capabilities. With modernisation ERP is equipped with new features like real-time API based integration, Event handling, Integrated analytics and Machine Learning. In essence an ERP fit for current and future business needs and based on current designs and technologies. With repackaging ERP becomes component based, and these components interconnect like lego blocks.
Key tenants of new ERP are adaptability, composability and orchestration. That enables agile delivery, best of breed solution selection and integration on top of a foundational platform: the Core ERP.
Core ERP is the custodian of enterprise data and core business process execution and ensures organisations can deliver valued products and services to their customers. Customer touch-points and customers journeys in the frontend may vary widely, ERP provides the inner capabilities and orchestration for seamless customer experiences.
For an omni-channel retailer, the customer controls the journey. Order a product online and get it delivered to their home, start online and finalise the purchase in-store or order online and pick up in store. The ERP core orchestrates coherent execution to support these journeys and thus ensures seamless operation in the full ERP platform.
A new customer dialogue on a mobile phone or a new APP can be introduced leveraging existing core ERP services. A new warehouse can be plugged into digital warehouse and logistics software components. That is composable business.
Pervasive integration technology is required to allow for a mix of integration styles that support the business operations at hand. API based, Event based, tightly or loosely coupled Process Orchestration are some of these.
The most important factor that remains in place in new ERP is the requirement to meet standards of resilience, reliability, security and scalability. 24/7/365 availability, e.g. demonstrated by uninterrupted servicing during peak loads of a Black Friday or Singles Day.
Organisations are in for a rude awakening when failing to live up to requirements in these non-functional areas.
In adopting the framework of composable business capabilities large organisations position ERP in the core referring to it in terms as ‘core’, ‘digital core’, ‘clean core’, ‘standard core’, ‘enterprise core’. These terms reflect the learnings of overly customised old ERP implementations, a clean ERP core implementation leverages the vendor’s capability better and should make it easier to absorb the vendor’s innovations.
The rebirth of ERP is happening now. Leading companies are already in the optimisation phase but for the majority, the journey has just started. A significant portion is still struggling to make the case and get the board to invest.
The promise of ERP is attractive, the dichotomy is that any transformation at a global enterprise continues to be a large, long-term initiative with a profound impact on the business. Decision making can take 1-2 years. The design and build phase for an initial template can be anything from 1,5 to 3 years. A global rollout easily takes another 3-6 years. Global companies with € 5 billion in revenue can require investments levels of € 150 million and with revenues of € 40 billion this number will grow to € 600 million and well beyond. The investment levels and the 6-10 year planning horizon are intimidating. Many CEO’s and boards have no appetite for expensive and risky initiatives that do not deliver tangible value within their tenure.
The buzz around the terms standard and core entices us to expect implementations to be replications of the same design. That is far from reality, it is the business strategy that determines what ERP implementation will align with and contribute to the strategy. A conglomerate with disjunct or dispersed and independent business areas will unlikely be successful with a global, single instance core ERP strategy and implementation.
Another factor is the diversity in the current ERP landscape. Growth strategies through acquisitions without applications consolidation and rationalisation have given large organisations diverse ERP landscapes: 10-40 ERP’s and more, sometimes from 2 or more different vendors, are quite common. Moving to a single instance, or a handful of instances, supporting a focussed global business strategy is a daunting challenge.
In private equity it is common to only do financial consolidation at the group level and leave all other core ERP functions to the entities they own. Acquisitions and divestitures are handled smoothly in this portfolio approach to business ownership.
I see a long, new life for ERP as an Enterprise Runtime Platform that organisations will choose to invest in in order to deliver on their mission, amplifying their capabilities and competitive edge in the process. This ERP is a key foundation in a digital world with composable business capabilities.
The issue is not whether ERP is dead or not. The issue is that organisation that take ERP and enterprise applications for granted and fail to align significant investments in ERP to deliver on their business strategy, may end up in a dead-end street.
long live ERP
Footnote: the hyperlink on pervasive integration (the term itself on loan from Massimo Pezzini) only works with licensed access to the Gartner portal.
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