The new ERP is a service to the business

SUMMARY:

If traditional ERP is no longer fit for purpose, what does new ERP look like? I talked through some ideas with industry veteran Workday’s Mark Nittler

Mark Nittler VP enterprise strategy Workday 250px
Mark Nittler Workday

In the space of a generation ERP has undergone a dismal transformation, from enterprise lifeblood into digital deadweight. In the 1990s, no organization could hope to thrive without a modern ERP system at its core. Twenty-five years later, those same ERP systems resist all attempts to modernize for business survival in a digital world.

My diginomica colleague Brian Sommer has catalogued the failings of old-school ERP and mapped out some of the requirements for a new ERP. In a follow-up post, Den Howlett argued ERP must reorient itself around customer experience.

My take is that ERP — or rather, the core systems that replace it in this new, connected digital era — must become a service to the business. That simple phrase implies a fundamental transformation, because it requires those core systems to become outward-facing, with a primary mission to provide information and be a platform for action rather than to collect data and book transactions.

Equally implicit is a reformed mission for the functional departments that ERP systems have historically served. Finance, HR and procurement are no longer adminstrative centers whose core mission is to collect and transact. Instead they have to become service centers that support managers throughout the organization in harnessing resources — money, people and suppliers — to deliver the business outcomes (and customer experiences) that are the core mission of the enterprise.

Seen it all before

I had a chance to explore some of these issues in conversation last week with Mark Nittler, VP of enterprise strategy at Workday, one of the vendors vying to deliver an alternative to traditional ERP. Whether it’s succeeding is a moot point but its customers are certainly the kind of organizations that want to move beyond the old world, and Nittler has an interesting perspective having seen it all before.

Long before ERP came into existence, there were a raft of vendors in the 1970s and 80s that provided accounting applications on mainframes. Nittler joined one of them, McCormack & Dodge, in 1984, and witnessed the rise of SAP, whose ERP software consolidated formerly disparate applications:

When I was in McCormack & Dodge we had a GL [general ledger] and a fixed assets system, an AP [accounts payable] system, an AR [accounts receivable] system. Those were bought from other people, so completely different companies doing that. That’s how people were running their finance shops.

What SAP did is they looked at those four things and they said, ‘All those are joined by a common accounting key and if we put a common reporting capability and a common accounting key across the whole thing, we could create an accounting system. It would be far more efficient, far more powerful than anything that’s out there.’ So they did that and it was a beautiful thing.

They basically took the status quo in the early ’80s and they redid the whole idea of what we were trying to accomplish and created a whole accounting system.

Ignored components

A generation later, what SAP defined as an accounting system is what people generally think of when they think of financial software. Nittler believes that’s ignoring the other components that have become commonplace over the past 25 years, such as business intelligence, forecasting and planning, and compliance.

Now, instead of GL, AP, AR, fixed assets, you’ve got accounting, reporting, planning, and controls. Same thing happened in HR. Everybody had a personnel administration system but as talent became important you had to have talent, you had to have recruiting, you had to have all these other things, so you put all that together.

You’ve got finance redefined, you’ve got HR redefined. If you do that next level of combination in the HR and finance, you’ve got a real handle on the primary resources of a business, especially one that doesn’t do manufacturing.

That’s really what we’re putting together — looking at the resources of operating a great business, pulling those together and recognizing that those things interoperate.

That sums up Workday’s proposition and the company is starting to emphasize its offerings as a “business management solution” that provides a system of record as one of its services rather than as its core mission. Or as Nittler told me:

We’re not building an alternative ERP, we’re building an alternative to ERP. It’s a different model. The word ‘to’ is a big deal.

Serving the business

That brings us back to my contention that the new ERP (or rather, its replacement) is a service to the business. Here’s Nittler’s historic perspective on that:

The technology we’re using right now, the web-based foundation — it’s a communication and consumption technology. It’s not a data entry, data processing technology.

The financial systems we’ve used since the ’80s have been about processing. That’s what the mainframe world was about and client-server was the front-end of the mainframe world. We’ve recreated that in a lot of ways in this new technology — we’ve moved radio shows to TV.

The collaboration — you might call it self-service today — those things, as a service to the business as opposed to a control and regulatory management function, are starting to happen and I think that’s where it’s all going.

Already at some customers, Nittler says he has encountered line of business leaders who routinely view key metrics in Workday dashboards and custom reports, or who like to drill down to find specific information about individual performance. That was not something he encountered in the client-server days when working at Peoplesoft.

There was not one CEO I could tell you ever looked at a Peoplesoft screen … COOs don’t use Peoplesoft. They don’t use Oracle. They don’t use those things — and yet we’re having those kind of discussions.

My take

It’s still early days and not happening at every customer, Nittler conceded. Workday’s move into planning, especially after the release of its Worksheets tool next year, will provide further support for business use of Workday. So this is more of a glimpse of the future rather than a full realization. And Workday’s offering doesn’t currently cater to businesses that deal primarily in physical goods. But while we can’t portray Workday as a full-fledged model for the future, the trends Nittler describes give us a take, informed by historical context, on the direction of travel.

Image credit: Butler presenting silver service © bigstock; Mark Nittler portrait by Workday.

Disclosure: Oracle, SAP and Workday are diginomica premier partners. Workday funded my travel to Dublin for Workday Rising EMEA, where this interview took place.

    Comments are closed.

    1. Harald Nehring says:

      If only the future would be as linear as the narrative we’ve created of the past 😉 I’d put a big caveat on any vendor-invented inevitability of them perfectly surfing the disruption-du-jour while their short-witted competitors just sit their celebrating past successes. As always everybody just wants to get the big budgets, telling whatever story required to get them.

      1. Phil Wainewright says:

        Thanks Harald for your frank appraisal 🙂
        I do like to think that at least the vendors believe their own narrative, even if it turns out to be misguided.

    2. says:

      I was somewhat flabbergasted by this article. In my experience with high value added manufacturing ERP it is quite clear that the next big step is for the manufacturers to concentrate on using what they have to best effect for the companies core objectives. I spend my life working with companies who believe the only way to be better is to get a better system when the real answer is to demonstrate they can use what they have to the best advantage, then once they can demonstrate that, if there are specific tools they do not have to do the job then look at the best way to make those facilities available cost effectively and under control. From a web connectivity point of view the future is then in connecting any system (whatever ERP they have). Any alternative approach is just concentrating sales to specific ERP vendors and that is counter intuitive to the whole web connection opportunity – but it is exactly what the vendors are looking for.
      .

      1. Phil Wainewright says:

        Thanks for your comment Ian.
        While what you say makes a lot of sense, there is a problem if the manufacturer’s ERP system is based on software designed in the 1990s because such systems simply don’t have the ability to deliver what’s needed in a web environment these days. The danger with attempting incremental change is that you end up spending more and achieving a worse result than if you’d grasped the nettle in the first place. This is not necessarily good news for the incumbent vendor because often they are promoting an upgrade which doesn’t go far enough.