Big vendors with huge R&D budgets mean change was inevitable for ERP vendors. But did the innovation take a back seat to material change of control, technical architecture, and tech spending changes? Here's our picks for the issues affecting ERP customers in 2022, plus some guidance for ERP buyers in 2023.
Servitization also changes the economics of a manufacturer. These companies can go from selling a physical product to selling an outcome as a service. For example, a company might sell an elevator for a one-time fee and also offer to maintain and upgrade it for an annual service fee. Alternatively, it could sell floor transportation as a service for an annual fee. There are lots of ways to price these deals but basically you see manufacturers wanting to shift from one-time product sales to having long-term service revenues.
Why? Brian wrote about ERP vendor IFS’ growing infatuation with ‘servitization,’ and how this was front and center at their recent user conference. While this concept isn’t exclusive to IFS, or entirely new, either, IFS’ commitment to the concept is significant. But for ERP vendors - not to mention customers in business model transition - the merits of servitization will receive plenty of scrutiny in 2023. As a result, we'll likely see a growing overlap in technologies related to ESG and big data. Why? The same sensors that detect anomalous behavior of a process or piece of equipment can also help calculate a firm’s carbon footprint, and its progress in meeting growing sustainability requirements.
I'm not going to lie: when I first started saying that "the future of cloud ERP is vertical," it was more of a gut belief. I didn't have the proof points. But the proof points are coming.
Why? If you forced Jon to pick two areas where ERP must change, he'd pick: serve industries better (get vertical), and be more adaptable to changing circumstances (get more agile). Ironically, sometimes we see more evidence of these cloud ERP shifts in the mid-market than with the large enterprise vendors. Either way, change is coming - and Jon got a big glimpse of that via the Acumatica Summit. Looking to 2023, customers should challenge cloud ERP vendors on both fronts - in particular, on their ability to address industry challenges, in terms of functionality, analytics, and specialized services partners.
It's the second point, the need for a transitional platform, that really signals this Sage/Sage Intacct shift I'm talking about. The Sage Digital Network is meant to provide this transitional framework, while also serving as a cloud services delivery platform for Sage Intacct's customers... At Sage Transform, we heard about some of these cloud services, including Accounts Payable automation. Why limit access to such functionality to only Sage Intacct, when it can be made available, as cloud services, to all Sage customers?
Why? Cloud ERP vendors with on-premise install bases have a new dilemma: how do you help customers move to the latest cloud release, in an economic environment where there is very little appetite for major ERP upgrades? (And, too often, the desired industry functionality isn't yet available in the cloud version). At Sage Transform 2022, Jon documented one distinct approach that is taking shape at Sage, via Sage's Digital Network. Helping customers on older ERP releases move cloud workloads gradually is a whole different (and welcome) ball game. For 2023, ERP customers should be pressing their customers for quicker wins, no matter what release they are on. How can your ERP vendor really put skin in the game of your transformation quarter by quarter, without requiring a multi-year upgrade? Let's press the question.
What Allen is saying is that cloud ERP selection and implementation teams must plan for the headcount, processes and business changes that will be factors in the post-implementation world. While the quotes above point to a couple of post-implementation needs, the firm will likely need skills in other areas, too. In short, every firm should have people for:
- Continuous Process Improvement
- Release Management
- Process Reengineering/Process Automation
- Integration Management
- Data Management
- Identity Management/Security
- AI/ML/Algorithm Tuning/Management
And all of these are in addition to the functional headcount you need to actually process transactions, deal with exceptions, etc.
Why? The challenges don't end once customers hit the new release; post-implementation staffing has changed. That's one big takeaway from Jon and Brian's interview with Jon Allen, CIO of Baylor University, where they received a master class on the headcount and processes needed AFTER an organization implements a new application software solution. For 2023, ERP buyers should demand better guidance from vendors and implementers as to what it will take to really implement AND use a new system. Software selection projects will want to dramatically expand their TCO models as an input to the decision-making process. Buyers will need new staffing to successfully operate and manage their cloud apps.
Customer-facing, self-service finance? Liberty Security shares their Zoho Finance Platform experience
Today's finance leaders have a daunting purview: serve the business with insights, not just reports. And: do more with less. But what about serving customers better as well? All of that is within the scope of Liberty Security's Zoho Finance Platform projects.
Why? No, Zoho isn't an ERP vendor - not yet. But we selected Jon's use case for two reasons: one, Zoho is one of only two vendors in this space, along with Acumatica, that offers a refreshingly different user licensing model. Second, to hear a customer talk about implementing a project without consulting support, and delivering "self-service" finance to boot, is worth a look. Finance transformation is at the heart of most ERP projects. But are we thinking too small? What about taking a page of Liberty Security, and figuring out how to involve customers in their own finance management, at least in areas that are appropriate and where data security is exceptional? In 2023, we encourage buyers to press customers on their licensing models. How is an inflexible user seat licensing model compatible with the "agility" ERP vendors say their customers need in 2023? Also see: Jon's prior piece, Extracting value from cloud ERP in a customer-first world - what should we be pushing for?
NetSuite executives seemed to believe this to be a winning strategy for SMBs. This is why they are focusing much of their development energy on the use of advanced technologies in their applications. These technologies could include: artificial intelligence, chatbots, smart analytics, RPA, big data and more. They hope that these technologies could help in areas like process automation so that a process could become almost fully automated. This could significantly help reduce personnel needs in some process areas.
Why? Advanced ERP tech - it's not just for enterprise-class customers anymore. ERP vendors have been talking up the use of advanced technologies for the last couple of years. But the most notable and significant providers of bot-based, ML-powered, big data crunching solutions have targeted large enterprises for their solutions. Often, SMB ERP buyers have found fewer advanced capabilities for their solution needs. That perception changed in 2022; Oracle NetSuite was one vendor that helped to shift that. Brian recapped what he saw on the ground at SuiteWorld, where NetSuite demonstrated a number of advanced capabilities. For 2023, mid-market software buyers/users may be in for some change. They may need new skills/personnel to accommodate all of the new, advanced technologies that will become part of their ERP suites.
Rootstock’s best targets might be manufacturers who want to implement advanced technologies. These firms are creating factories of the future. They are implementing additional sensors, meters, etc. to better understand the environmental impact of their products, production methods, etc
Why? Lately, there have been several deals where material change of control events have occurred at ERP firms. In 2021, Plex was acquired by Rockwell Automation. In 2020, Koch Industries acquired all of ERP vendor Infor. And, more changes occurred as CEO’s were changed (e.g., Cornerstone OnDemand got a new CEO earlier this year), new investors took positions and other changes in recent times. This time around, Brian focused on ERP vendor Rootstock. Alas, in these material change of control scenarios, it’s the customers that are rarely winners. In a time when almost all ERP vendors are preaching ‘resiliency’ and ‘flexibility’ in these highly volatile and changing times, 2022 was a year where the vendors had to display those traits, too.
Workday has shifted/tuned its strategy, technology and marketing recently. Gone is the Power of One and now it showcases a multi-faceted Power to Adapt concept. This will change how Workday deals with acquired products (inorganic growth), how it empowers customers, how its partner firms will add value with customers, and, how Workday is perceived in the market.
Why? Speaking of change, ERP vendor Workday made a material directional change this year when it altered its Power of One strategy to something quite different. For 2023, more vendors may have to develop a similar approach to acquisitions and platforms. Organic growth takes a long time, while inorganic growth can happen with the speed of a handshake. Vendors have to have a way of acquiring cutting edge solutions or solution components at speed. Customers will likely want to engage prospective ERP vendors in discussions to understand how they’ll incorporate newly acquired technologies and how buyers will integrate these with their other (non-ERP) solutions with the speed and accuracy of the vendor’s new solutions.
ROI can come from surprising places - but you must find it. During our media roundtable with CMO Oliver Hughes, CMO of Red Bull Racing, he shared their extensive work with Oracle - from engine building to data analysis to cutting edge CX. We asked Hughes how he assesses results. He responded with one of the most unique ROI examples I've heard.
Why? We always need to gut check what vendors say with the results customers get in the field. At Oracle CloudWorld, Jon pulled lessons from multiple customers on how they drive their transformation, and how they justify it from an ROI perspective. This will be a critical factor in 2023. Some customers think they can reduce risk by only doing a technical ERP upgrade. But most ERP projects need a much broader business case, tied to transformation results. That business case becomes more feasible when you reframe ERP from a back office pursuit to the "digital backbone" of your business, with the goal of extending visibility into customer data and back into your supplier network. ERP buyers should always expect vendors to provide them with industry-specific references and benchmarks. On that point, Oracle's Steve Miranda didn't mince words on "industry cloudwashing" in Jon's latest: Time to get real about industry clouds - Oracle's Steve Miranda calls out industry cloudwashing.
I also want to learn more about how SAP's private cloud S/4HANA customers are moving to a so-called "clean core." Because the market has changed - you aren't going to see many massive ERP projects in 2023. Companies want to do these moves gradually - in areas that deliver business impact. Frankly, that's not how ERP was designed.
Why? It's fitting we close with a piece that argues for a different kind of ERP thinking - because, frankly, today's ERP solutions aren't really set up to deliver the kind of "resilience" customers now need. But is that changing? ERP vendors will tell you, "yes!" In 2023, buyers will need to validate those claims carefully. Jon chose this piece because it reflects how dialogue with executives can be combined with user group discussions for a more well-rounded view (also see: Jon's user group interview, Sustainability, S/4HANA adoption and low-code - hitting the hot topics with UKISUG, and a notable SAP Sapphire use case, How Bristol Myers Squibb uses SAP BTP to evolve their S/4HANA landscape - and their business). Jon believes the "public cloud ERP" versus private cloud debate is over, and he explains why. But it's ASUG CEO Geoff Scott's quotes on resiliency in an uncertain world that brings it all to a head: ERP category discussions are too insular. Let's aim to open that discussion up further in 2023.