End of an ERP era, start of a new one in a radically re-imagined world

Profile picture for user brianssommer By Brian Sommer October 29, 2021
Summary:
While many vendors have opined as to the future of work and ERP, NetSuite, last week, showed a lot of new capabilities that could move their customers closer to a very different ERP consciousness.

change

Last week’s NetSuite show, SuiteWorld, provided a detailed look into the future of work and business technology. It also marked a signal change in how we think of ERP and what ERP should be doing. This comes at a time when old ERP isn’t looking all that great.

Old ERP didn’t change well

Change in ERP (and related sub-suites like HR, Finance, etc.) has often come at a glacial pace. For example, I was talking about big data’s potential with the leadership of a major ERP vendor in the late-90s. Unfortunately, I was 20+ years ahead of their ability to commercialize it.

ERP vendors have struggled to evolve their ever-sprawling suites at a pace equal to the introduction rate of new innovative technologies (and business requirements). Their product lines are so vast that changing everything is time-consuming and very expensive for them and their customers. In fact, the larger a vendor and its products get, the more ossified things get. At some point, vendors quit apologizing for their ever-slowing innovation deployment rate. They start arguing that too much change too quickly would be bad for their customers or that customers can’t handle that level of disruptive change. Sure, that’s BS but vendors have gotten really practiced at using these hollow arguments.

Big shifts in ERP occur rarely. In my career, there have been only a few times when you could sense a major pivot was going to occur.  Some of the big ones of note have included the:

  • Movement off of flat files and batch programs to database technology and real-time processing
  • Movement to client server in the 90s and the embrace of the Unix O/S and PCs
  • Shift to the cloud, decline of the data center and the ascendancy of multi-tenancy

There’s a new big shift underway NOW. This shift changes the focus of ERP from internally-focused transaction processing to a more cosmopolitan set of apps that really take advantage of external data and advanced tools.

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The New ERP pivot is here

The latest pivot has been hyped by ERP vendors for years. But, it’s been mostly talk. Vendors talked about connecting big data but that really wasn’t possible as they would require all of that data to be loaded into their inappropriate relational databases. Vendors talked about smart analytics and big data analytics but it often took them 18 months just to build one analytic tool. In fact, vendors were long on the concepts but short on changing their tech stack to actually make these capabilities come life quickly and inexpensively.

So, all of this talk at user conferences and analyst briefings for years was only somewhat notable. At least we knew, directionally, where the vendors were headed but there were few details and few to no customer studies of these capabilities in action.

That’s changing and changing now.

The pivot some ERP vendors are attempting is a safe but death by a thousand cuts approach. These firms want to introduce a phased-in approach where customers slowly get access to a new platform, new data storage/processing options, greater systems scalability and more over time. These vendors don’t want to lose any of their current old ERP customers so they’ve created a multi-step transition path to the radically different ERP world. They’re even willing to functionally and incrementally enhance the old product line, too. The concern is that in all of the movements to new cloud-based versions of the product, implementers and customer staff will be tempted to simply map old data and processes to the new system. That really defeats the point in getting a new value proposition and to utilize advanced technologies to deliver very different kinds of work outcomes and insights. Incrementalism is not bold and will likely return substandard business benefits.

The new world really started to unfold last week in two very different events. One was Zoho’s announcements regarding its up-market product line, Zoho One, and the other was NetSuite’s SuiteWorld user conference.  Interestingly, both firms are native cloud solutions and have no install base of on-premises users to drag into a new ERP world. Their enhancements automatically become effective whenever the customer chooses to use them – no multi-step conversion is required to get the benefits of the advanced technology.

NetSuite’s pivot on display

Attendees at the NetSuite SuiteWorld event got many opportunities to actually see the new world of ERP in many demonstrations and talks. These weren’t vague directional suggestions for the product line. We saw the use of advanced technology in NetSuite’s ERP include:

  • Cool, slick, smart bank reconciliation functionality – Machine learning (ML) is being employed to do a lot of the matching of bank statement line items with internal transactions. In one demonstration, users were only needed when certain exceptions or unmatched items needed special handling. But, this went beyond simple matching. The software provided recommendations of potential matches and prefilled fields based on what it has learned from prior reconciliations and/or component transactions. In one example, we watched how the software facilitated the matching of a customer’s partial payment of two of their numerous invoices. Not only did the smart matching facilitate the match, it also handled all of the accounting, the remainder balances, etc.  The fact that reconciliations can be done automatically by the user anytime they choose is one benefit but that the tool does most all of this tedious work is a productivity godsend.   
  • Cool, smart (ML assisted) payables processing – Like the previous example, when companies receive invoices from their suppliers, there can be a lot of work involved in encoding the transaction into the accounts payable system. Like a robotic process automation (RPA) tool, the software reads a digital invoice, identifies as many values as it can, relies on prior learnings from previous invoices from the same vendor to complete the payables journal entry, determines what expense (or asset) account each line item should hit, etc.  The demonstration went further as it showed how the software needs only minimal help from a user with all-new vendors/invoices/expense line items. The software remembers these choices and applies them on future invoices.
  • New integration tools - New integration tools coming from NetSuite allow customers to easily connect all manner of external, third-party, dark and operational data to the ERP suite. Being able to marry this information with ERP’s internal transaction data provides material opportunities for users to notice any number of market dynamics and act quickly upon them. One example of this, according to NetSuite: “new NetSuite Connectors provide seamless integrations with marketplaces such as Amazon and Walmart, third party logistics providers, and other ecommerce platforms like Shopify enabling customers to quickly add new channels that are needed to support growth.
  • New places for new data - Where does all of this data go and how do companies take advantage of it? NetSuite had a big announcement re: its new data warehouse and integration capabilities (see this press release ).
  • Smart assistance to SuiteCommerce users: NetSuite noted its: “new intelligent product recommendations in SuiteCommerce leverage transactional and behavioral data to drive more sales by enabling organizations to personalize offers to website visitors and predict which products are the most likely to be relevant for each individual shopper.

Yes, companies could do these things today but it would require the customer to separately acquire a number of third-party tools and integrate them with the core ERP. Now, those tools are becoming features/parts of the ERP suite.

Empathy for the exhibitors

Over the last few years, I have been briefed by numerous startups that sell process automation, robotic process automation, integration, payment processing, bank interaction automation and more. A significant number of these firms were in the exhibition hall at SuiteConnect and many will likely be at another event I’m attending in a few days. While I like a number of these firms and their teams, I can see the writing on the wall: the functionality within these niche, advanced technology solutions is starting to show up as native capabilities within modern, multi-tenant cloud ERP suites. And, if I’ve learned anything about software buyers, they are loathe to pay twice for the same or similar capabilities. So, as modern ERP solutions incorporate these advanced capabilities (e.g., chatbots), niche providers will likely see a diminished interest in their tools.

I checked with two other industry analysts and the consensus opinion was that these firms should seek a liquidity event (e.g., acquisition by larger firm or ERP vendor) as soon as possible with one analyst adamant that the window of opportunity may have already passed.

Buying & selling ERP in a radically re-imagined world

These advanced tools and capabilities mean that what an ERP solution can do has exploded markedly. No longer just a tool to capture, process and store accounting and some business transactions, ERP is now about:

  • Serving many additional constituents well (e.g., jobseekers, alumni, regulators, shareholders, vendors, customers, prospects, etc.)
  • Using lots of other data (not just financials and some operational data) to understand everything about potential buyers of the firm’s goods and services. Specifically, new ERP is about capturing, analyzing and serving up insights to marketers, business analysts, pricing algorithms, and even the customers themselves.
  • More than the functions and features needed to accurately process journal entries and other internal business transactions
  • Processes with scope beyond the old favorites (e.g., procure-to-pay, hire-to-retire). In fact, the lead tech executive at NetSuite proffered potential new process names that spoke to the broader functional scope and potential business impact each could deliver.

Buyers of ERP solutions have to change their practices and more. These changes include:

  • Buyers must really fight the temptation to document existing systems and translate old functionality into a set of RFI/RFP requirements. That will merely enshrine the past and not advance the firm one bit. It also means that the firm will miss out on many of the potential economic gains possible from the advanced technologies within the new ERP.
  • Buyers need to do some serious discovery work on their own to understand what is the art of the possible with these new solutions. If users can’t articulate numerous ways that advanced technologies can radically change/improve processes, illuminate insights and materially change business outcomes, then they shouldn’t proceed with a new software selection. You have to have concrete ideas on where and how your firm will get benefits from a new solution BEFORE you start to engage with vendors. Vendors can’t read your minds or know everything you might need/want. Do the homework.
  • Buyers must create a financial plan to understand where the ROI (Not TCO!!!) will come from. While some headcount reduction is possible, value could come from faster cash receipts, lower bank fees, reduced personnel turnover, etc. The development of the business case will help keep the team focused on radical changes to the status quo and help fight the pull by some to replicate current practices with a slight, incremental improvement.

Sellers of ERP solutions have homework, too. They must:

  • Throw out all of those seriously outdated ‘best practice guides’ they have issued for years. I say good riddance to these as most were merely collections of functions and features with many items being average practices anyway. One good example of what’s now required can be found in NetSuite’s Advanced Customer Support Playbook. According to NetSuite:

An expansion of NetSuite’s Advanced Customer Support service that includes prescriptive playbooks that help customers accelerate their return on investment. The playbooks are based on experience and data from thousands of implementations and will help customers address operational challenges, such as revenue recognition, project profitability or supply chain management, and cross-functional processes like quote to cash. They also support key growth milestones, such as a geographic expansion, IPO preparation or merger/acquisition activity.

  • Rework their sales collateral, website info, etc. The focus should be on what new, radically rethought processes look like and what they might be/contain.
  • Retool or upgrade the sales staff. Some sales pros may struggle to sell a completely different value prop. You will need people with intimate vertical and functional knowledge who can work with prospects to understand the art of the possible. If you have sales people whose function is to explain your ridiculously overly complicated SKU catalog and pricing schema, then you have additional sales problems to fix. Your sales pros should be focused on the value to be delivered by the solutions and not on the arcane, unintelligible gobbledygook within the price sheet.
  • Create numerous new dashboard and analytic components that marry functional, operational, big data and other information to create compelling insights and briefing books. The best sales aids will resonate with a prospect’s vertical/sub-vertical needs.

Implementation and services partner firms may need retooling in areas like:

  • Old solution aids are now obsolete or way less competitive. It may be time to develop new, original, primary research and ideation work to imagine the new art of the possible.
  • Sales presentations and case studies that are full of lift-and-shift narratives won’t cut it. If it doesn’t showcase original ideas, new processes and new insights, get rid of it.
  • It’s time to totally rework the value prop they pitch to clients. The low TCO story won’t work as buyers will expect a real ROI again.
  • Re-skilling thousands of staffers who only know how to configure tables and convert old transaction data into old products may become an expensive liability unless they can be retrained and repurposed quickly. What do they know about advanced technologies?   Can lift and shifters actually ideate? Do they need to spend time at customer plants, offices, etc. again to figure out where they can actually add value today thru radically reimagined processes?
  • And let’s not forget those ERP Innovation Centers/Labs/Centers of Excellence – they’ll go from assets to liabilities fast unless the content gets a massive overhaul to regain currency and relevancy

My take

During the show, NetSuite displayed advanced technologies throughout their product line. Beyond those mentioned above, NetSuite has current or forthcoming smart capabilities in areas like:  continuous financials close, corporate credit card reconciliation, automated payroll to G/L interface integration and more. They are also reworking a number of processes (e.g., onboarding).

It’s time to say bye-bye to the old transactional, internally user focused, relational DB powered ERP we’ve known for decades. The advanced technology is now apparent in newer generation ERP and the all-cloud vendors may be in the lead.

It’s also worth recognizing that NetSuite is providing these new advanced capabilities to mid-market firms. That’s in contrast to many other vendors that are building solutions that only large enterprises can afford. Think of this as a democratization of advanced technologies.

Whether you share my enthusiasm around all of NetSuite’s enhancements, you have to recognize that other ERP vendors are adopting many of these same capabilities. We’re now in an arms race in ERP and the fastest AND smartest vendors stand the best chance of grabbing market share. Vendors still fixated on their old, on-premises customers may be at a disadvantage as these customers may be a drain on their real innovation. Those on-premises customers may have to decide whether to do the multi-step transition, ring-fence the old ERP and buy a lot of bolt-on solutions, or, chuck the old ERP altogether to implement something really radical now.

It’s decision time, folks!