Disintegration of ERP into services accelerates

Disintegration of ERP into services accelerates

Summary: In a new report, Gartner gives single, massive ERP suites about two years.

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Gartner recently issued a prediction that massive enterprise resource planning (ERP) systems are bound for the scrapheap of history. In the long run, it ultimately makes sense -- but Gartner only gives them another two years.

By 2016, the folks in Stamford say, "heavily customized ERP implementations will be routinely referred to as 'legacy ERP.'" In its place will be a "more federated, loosely coupled ERP environment with much of the functionality sourced as cloud services or via business process outsourcers."

The unbundling and dissassembling of ERP megasystems has actually been taking place for close to a decade now. The large vendors, SAP and Oracle, et al, recognized at the outset of the service-oriented architecture movement that enterprises would be evolving to deploying sets of reusable, standardized services to get at needed ERP functionality, such as customer sales, order tracking,  financials, human resources, and supply chain management. There was recognition that core legacy systems could be wrapped within a service layer of interchangeable "components" that would be far cheaper and easier to replace, versus doing major system upgrades.

Now, cloud, which puts those abstracted services into extremely user-friendly packages, is accelerating the stripping away of ERP systems. Gartner predicts that by 2018, at least 30 percent of service-centric companies will move the majority of their ERP applications to the cloud. Note the analyst firm says majority -- suggesting that for some time to come, ERP will be a hybrid mix of on-premises core systems and cloud services. 

The bottom line is that companies will move away from relying on one big honking ERP suite for everything. "The concept of a single ERP suite that meets all of an enterprise's needs is dead, and has been replaced by a hybrid ERP approach that combines cloud point solutions with a smaller "core" of on-premises ERP function, such as financials and manufacturings."

There's already momentum toward cloud-based ERP. For example, online ERP provider NetSuite reported 35 percent growth in sales in the most recent quarter.

Gartner cautions, however, it will be some time before enterprises see favorable total cost of ownership reductions as a result of breaking ERP functionality out into the cloud. In addition, much of the move into cloud-based ERP will be led by service-sector industries. Manufacturers -- heavily invested in ERP systems -- will take longer to evolve.

(Disclosure: the author has performed contract work for Oracle, mentioned in this post.)

(Thumbnail photo: US Census Bureau.)

 

Topics: Enterprise Software, Cloud

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4 comments
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  • Shrink Wrap ERP

    When I was working on my master's degree in IS, it was about the time all the major ERP systems were already implemented so we were doing Harvard case studies on the post-mortem of these roll outs. The overall conclusion found was that a company was better off just installing an ERP system as close to vanilla and non-customized as possible. In fact even if you needed to not only change your process but even change your products to conform to the stock ERP methodology used, you were better off on the ROI.

    My company has a nightmare of an ERP system and it will be a nightmare to one day upgrade that.
    Rann Xeroxx
  • Customizing ERP has been on the decline for a decade.

    Years ago CFO's brought an ERP & customized it to their business. Then they realized that every vendor upgrade became a nightmare of re-validating their customization. So they became locked into the initial version. Waited 5 - 10 years. Then did a massive ERP re-evaluation & repurchase.

    Over time many decided it was more cost effective to adapt their business processes to the capabilities of their ERP system. To ask the vendor for new features & to upgrade as the release became available.

    This "generic" approach makes it much simpler to transition to a cloud based version of their vendors s/w. And also move to a Best of breed component approach, so long as there is strong integration between components.

    That is why I believe this uptake is much more rapid that some anticipated.
    DavidLean2
  • The sooner the better

    It's the right time for all organisations to be having a good look at what their ERP actually does for them and how much it constrains them (time and cost of change primarily which can kill a businesses competitively).
    I believe strongly that the large scale installation has had it's day compared to lightweight task specific applications and services that can be purchased as best in class (rather then compromise with a clunky system).

    I think the primary turn-off of ERP though in the biggest ones like Oracle and SAP is that they feel out of date and unintelligible to the end users, and when you are using these systems it is hard to feel as though the cost of maintaining them is warranted. This is particularly true where what could be leaner and less controlled processes are distorted in the ERP cogs.
    londan
  • Depends on Business and ERP system

    Certainly the big stuff like SAP and Oracle have very poor reputations with many unfinished projects massive cost over runs (say 5 years over and 200 million over) and because there is no 'out of the box' best practice easy set up with them the implent cost will remain high. They are going to go into maintenace mode. They have lots of customers and so it will be profitable.

    But as Rann Xeroxx says, companies are now putting the software plain vanilla. At the third or fourth implementation they have learnt where the real costs are, and also the mid range software is so much better now.

    But as for the cloud - nope not yet. Churning too much data for AWS, Azure or anything similar to handle
    sonnet37