What’s the Future of ERP? 5

Is ERP Dead?

These days there is a lot to read on Cloud and Cloud Computing. I have a written few blogs on these same topics. In the frenzy of cloud computing (I do admit that the potential of cloud computing excites me very much), what do you think will happen to ERPs? I have had many discussions on the topic. It’s an ongoing debate with customers and system integrators alike. So I’d like to discuss my point of view here on my blog– and I certainly welcome your comments and feedback.

I recently visited museums in India. One of the museums featured India’s Industrial Revolution. It showcased how the country evolved as a spice exporter to a cotton producer and to a technology exporter. It’s an interesting history for sure. Now India is recognized for its technology knowledge base. The museum reminded me of one big fact. Still today, and most people don’t realize this, IT Services is less than 5% of India’s GDP. Agriculture followed by Services and Manufacturing continues to be the major portion of the Indian economy. Why is it important in this context? In today’s IT world, most magazines are full of cloud articles, blogs, presentations, conferences etc. In reality, according to some estimates, ERP Cloud applications (full or partial functionality) are ~$2 Billion. The total market size is over $150 Billion. If you include Supply Chain Management in the equation, the global market for ERP is even bigger. Contrast this with the adoption rate of Cloud Services for Email and Office tools. It is projected that Cloud will account for 40% market share in the next couple of years.

Why is this contrast between ERP adoption and other Cloud software?

Let’s trace the brief history of ERP (enterprise resource planning). There is a short article published in the Journal of Operations Management. I have tried to summarize it to jog our memories on why ERPs came about. In the early 1940s companies started using the calculating machine to automate some functions. When IBM started marketing mainframe machines for organizations, operators saw the value of the technology and some large organization stared to invest in it. Mainframes were used for specific functions and needed a lot of support and they created silos within organizations. For instance, there was a job to calculate payroll, there was a job to compute totals to be included in the financial book-keeping, but the two jobs didn’t necessarily talk to each other so humans had to intervene and made them match. This matching of jobs, however, caused inefficiency in operations as well as gross inaccuracies in reporting. Then someone thought it would be great idea to have systems talk to each other and automate some of these tasks. This started more specifically with Material Resource Planning (MRP) applications. This integration of business operations soon showed a benefit and then further “consumerization” of Information Technology allowed other companies (large and midsize) to start adopting it. Then companies like Intuit and NetSuite started to focus on small business to offer a similar benefit. Companies started to spend a substantive effort and resources to implement these business applications and standardized business processes. Salesforce and NetSuite changed the paradigm on how companies license the software. In early 2000, the Service Oriented Architecture (SOA) concept came about mainly to address the biggest issue with ERP. No single ERP could satisfy corporate requirements and it cost too much to integrate and keep systems fresh. SOA got a lot of press and was the talk of the town, but it never took off until just recently and (not surprisingly) it took off just after most large ERP vendors started supporting SOA natively.

Now, Cloud is the talk of the town. There is an increasing adoption of cloud services when it comes to infrastructure, but it’s still in its infancy. There is lot to learn. As it pertains to enterprise applications, there are many roadblocks. There is very little adoption of Cloud applications when it comes to enterprise business. The main reason for this lies in the history of ERP and how ERPs came about. ERP vendors like Oracle and SAP have plans to offer an ERP suite in the Cloud, but they are not in any hurry to do so for obvious reasons. There are niche players that offer specific applications where ERPs have gaps like WorkdayRightNow, etc. Integrating these individual applications into ERP is still an organization’s responsibility. Enterprises, however, will never go back to 1960-1970 where they have “siloed” applications and as a result still struggle to integrate them.

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Cloud applications make business sense for those organizations that are not in the business of IT. Companies have been trying to set this up via outsourcing for some time, but it’s never actually relieved them of the burden of managing IT software and infrastructure. Cloud offers that promise. There is an opportunity for the System Integrator here to provide a platform that will give choices to the customer and allow them to integrate the various cloud applications from one or more vendors without organizations having to care about it. Both Cloud vendors and System Integrators need to figure this out together. If Cloud adoption is to really reach the enterprise in a meaningful way (outside of communication and messaging), this integration issue must be addressed. There needs to be a framework that can support integration of various platforms, technologies and applications with central management processes. It needs to be easy to understand and has to be secure.

For now, most organizations are still continuing to rely on ERPs. However, ERP vendors are now preparing for new ERP packages with a “Cloud” model by revamping their applications and licensing models to provide this option to their customers. ERPs are very much alive and will be here for some time to come. How it’s delivered to the customer will definitely change and System Integrators will have to play big role in the adoption of a Cloud model for ERPs.  This warrants a separate blog to discuss the role of System Integrators in our new Cloud economy. For now ERP is here to stay in some form and the role of System Integrator will still be a critical necessity for some time to come.

Right Size IT 1

Mainframe…Client Server…ERPs…SOA…Cloud…

What’s next?

Great technical advances and concepts. How do you keep up with them? And more importantly how do you know what is right and optimal for your business and organization culture? When I was in business school, my professor always use to draw a triangle to explain organization theories and how the balance is created by using a bridge between opposing forces. That analogy is a very relevant today as well.

Example 1

Business models are changing very fast. Social media has completely changed how marketing strategies are formed. There is not one person who has ever heard of crowd sourcing who has not done so without spending a dime to make this change. Organizations (people) and cultures are still very slow to adopt these changes. The gap between changing business models and its existing organization is growing continuously. This is where today’s CIO has the opportunity to provide the right solutions to bridge this GAP – as shown in the illustration below.

Example 2

Another common problem phased by business today is that consumer expectations are getting higher. Consumers are expecting more for less. Businesses thus have more pressure to improve the bottom line. Most businesses are either commoditized or on their way to be commoditized. So the only differentiator left is really the efficiency of the organization. CIOs have an important role to play in this scenario as well. The right IT solution can provide that differentiator. Wal-Mart’s inventory control system, for instance, provided the right differentiator for that particular organization. A differentiator in highly commoditized business is illustrated below:

Example 3

This last example is for the businesses that are involved in highly innovative products. When a company launches a successful product which is innovative in market and meets a consumer need, it is challenging for businesses to keep the focus on innovation and not to get distracted by the “success pain.” IT has an important role to play here too in order to allow the organization (company) keep its focus on their mission while IT keeps the supporting processes running and to scale as business grows.

All three of these examples describe how IT must now focus on solving business problems. All too often I see IT starting with the solution without looking for the problem. This was true, during the Dotcom days and it is equally true in today’s Cloud Economy. I am very big on Cloud Services because I think the Cloud is truly going changing how we consume IT and communication services. However, CIOs still need to carefully evaluate the business’ fit into the Cloud. It is not easy to access and there is no one-size-fits-all formula or solution. Gartner has published many guidelines and best practices that are good references, but there is no substitute for one’s own due diligence and finding the specific answer. It’s your discrimination after all. I call this methodology “Right Size IT!”