Disintegration of ERP into services accelerates

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

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 "The concept of a single ERP suite that meets all of an enterprise's needs is dead, and has been replaced by a hybrid ERP approach that combines cloud point solutions with a smaller "core" of on-premises ERP function, such as financials and manufacturings."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.)