Extracting value from cloud ERP in a customer-first world - what should we be pushing for?

Profile picture for user jreed By Jon Reed September 24, 2021 Audio mode
Summary:
The cloud ERP benefits debate doesn't go away - nor should it. Customers don't magically achieve business benefits by flipping the go-live switch. But in a customer-first era, is ERP even relevant? That's a good place to start this epic - which includes my updated ERP benefits stages.

taking-the-leap

I have an unpopular view on cloud ERP benefits. Well, at least cloud ERP vendors tell me that. I don't happen to believe that cloud ERP benefits magically appear at go-live. I believe you have to push for them, and keep pushing. As I wrote in Cloud ERP isn't a handshake deal - it's a value extraction challenge:

Extracting full value from cloud ERP is not about flipping the go-live switch. It requires organizational will - and a fierce collaboration with the vendor and/or consulting partner(s).

And:

Even more concerning: some customers never get to what I would call an advanced stage of cloud ERP.

Make no mistake, the pressure is on cloud ERP vendors. Tell me something, in the era of the customer-first imperative, where Dreamforce is the dominant enterprise show and "CX" and "CDP" are the dominant enterprise buzzwords, does this value proposition sound compelling?

We can modernize your back office and make it run better and more efficiently.

Nah. Unless you're in serious legacy pain with creaking siloed systems, that's not much of a pitch. It's way too internal, with questionable ROI radiating from its insularity. How about this one:

Modernizing your ERP will give your customers and suppliers a new level of transparency. You'll be able to respond in real-time to business changes. Our ERP will be your industry backbone that allows you to easily build vertical/customer apps, and automate business workflows - without the help of IT.

Our data platform is easily accessible, analytics are embedded, collaboration with team members is easy, integrating with other CX or supply chain systems is a breeze, and AI provides role-based "next best actions" and alerts.

Yeah, that's a lot better pitch, albeit larded up with a few buzzwords. But how many customers have you heard describe their ERP systems in such a manner?

ERP vendors - ring-fenced or transformative?

Has the pandemic changed any of this? Yes and no. Yes, the pandemic exposed competitive weaknesses and supply chain vulnerabilities that motivated companies to change up - and invest in new software. But to the chagrin of ERP vendors, that urgency led buyers to invest in customer-facing projects with a more obvious return. Or: to invest in cloud apps that have a faster impact, and a more forgiving project timeline (see Brian Sommer's latest wake-up call, ERP's new direction - it's coming from the outside). Brian warns:

I have yet to meet a CEO, CFO or CIO who wants to upgrade or replace their ERP software unless there’s simply no choice.

He concludes:

Old ERP will work in the new world but it needs to be supplemented with powerful new capabilities that add current, relevant value.

As I wrote in Enterprise hits and misses, ERP vendors best be careful, or they will find themselves ring-fenced out of the transformation plan. In the ring-fenced scenario, ERP is perceived mostly as a crotchety data repository for external solutions to leverage:

If ring-fencing prevails as the dominant transformation model, the so-called "ERP back office" will eventually wither into cloud application workloads, as specialist cloud vendors break off more and more chunks (example: cloud-based CPQ engines). Instead of losing market share quickly via "rip and replace," ERP vendors would therefore shrink over time, and lose even more boardroom relevance.

Obviously, I am using "cloud" in a problematical way, as "cloud ERP" solutions aren't created equal. Generally, if your users can't easily absorb new software updates, if they can't extend and build on the vendors platform without breaking anything, if they can't easily adjust pricing and licensing based on user needs or consumption, if they can't access their data for cloud workloads without having to pay you a data toll tax, and if they can't create their own automated workflows without speed-dialing IT, then I view your use of the word "cloud ERP" as either problematic, or, if I am being kind, aspirational.

I sometimes try to resolve this by reserving the term "SaaS ERP" for the so-called true SaaS offerings, as opposed to the "so-SaaS" my colleague Phil Wainewright has been calling out forever, but alas, SaaS can often be reduced to the subscription pricing model, which is not enough to qualify for true cloud ERP. Disclaimer done.

I worry, however, that the remote work era has given cloud ERP vendors a bit of a reprieve. Why? Because remote work has exposed supposedly "automated" back office processes that are not as automated as we thought. It's also forced the need for cloud-based UIs, to work from anywhere without the purgatory of VPN connections. That's something of a driver for cloud ERP purchases and upgrades, but in my view, remote access and better UIs is an early stage cloud ERP benefit. It might be a necessity in pandemic circumstances, but that's not the same as ROI.

Modern ERP - critiques and maturity models

So what are the cloud ERP benefits? What is achievable, for those who keep pushing? I started that discussion on diginomica in 2017 with What are the top five cloud ERP benefits? A use case review. In 2018, I added hypothetical "benefit stages" in Cloud ERP isn't a handshake deal - it's a value extraction challenge. Here are the stages.

Since then, I've tried to poke holes, and figure out what I've missed. Brian Sommer joined me for a modern ERP critique video show last year. Perhaps the biggest benefit I underplayed? Empowering business users to automate workflows. I've since documented this in several use cases, though I don't believe ERP vendors are anywhere near where they could be on this. Obviously, this topic is all the rage now with no-code and low-code - all aboard the enterprise tech hype train.

In particular, Acumatica has engaged with me on this:

With that in mind, what should customers be striving for? Let's start with my potential cloud ERP benefits list from 2017:

  • Simplifying tools improves adoption – and streamlines processes. Many customers were using a collection of scattershot legacy sytems, making daily tasks complicated.
  • A modern UI is a must-have for talent – and for employee productivity. The UX bar employees are willing to put up with gets higher each year.
  • A single source of truth allows for problem-solving, rather than spreadsheet chaos. "Single source of truth" is an exaggeration for most customers. Usually, several other systems of record are still in play. But "towards a single source of truth" is still a result.
  • Platforms and apps provide a viable alternative to clunky customizations. SaaS ERP does not have to be as rigid in standardization as some think. Yes, the standardization discipline is a good one. But for truly differentiating processes, the ability to extend on the platform matters (Caveat: not all cloud ERP vendors have the same level of platform commitment. Few have a true "apps ecosystem" yet).
  • Data visibility leads to a different way of running the business. Do cloud ERP right, and the end result is increased visibility – real-time or close enough ("right time" may suffice).

Cloud ERP benefits - breaking out the stages

When you think about it - only "simplifying tools" and "modern UI" comes out of the box at go-live. The rest must be fought for. In 2018, I broke these out into stages. This staged approach has limitations. The stages are not linear, nor are they inevitable. Here's the short version:

1. Immediate gains by consolidating disparate systems on a user-friendly platform.

2. Increased decision support and benefits of data visibility in (near) real-time, via a "single source of truth." Dashboarding is a hallmark of this phase - though role-based dashboarding is just a stage in creating truly actionable data. Beyond dashboarding lies the potential for an alerts infrastructure, automating routine decisions, AI-enabled prescriptive actions, etc.

(most cloud ERP customers are in a mix of phase one and two, but some are only in phase one, even if they've been live for years)

Then the third phase:

3. Achieving new business opportunities through a more agile and open platform via external-facing apps. Think: mobile commerce apps, opening up supplier portals, turning products into consumable services, opening your first B2C marketplace - all of which draw on the visibility and process flows from supply chain to back office to customer-facing. Pursuing new markets (and operational efficiencies) as the experience analyzing/applying the data in phase two increases.

No cloud ERP customers I've interviewed are truly knee-deep in this third stage, but some can point to initial apps and product extensions.

Now, here's an expanded/revised version of that staged list:

1A - Initial go-live - removal of pain from multiple legacy systems and over-customized instances. Improved UI and remote access.This is the main benefit phase we usually hear about. Faster quarterly close, beginning to do monthly closes, etc.

1B - Eligibility to absorb future innovations via regular updates applied by the vendor. Embedded AI and automation being prime examples, as many companies do not yet have the internal data science teams to build their own.

1C - Improved integration, in particular with other cloud systems, for optimizing processes and better analytics/AI.

2A - Data visibility/single source of truth part one - taking action on the numbers instead of arguing about the numbers.

2B - Data visibility/single source of truth part two - dashboarding. Beginning to use the vendor's dashboards (and mobile ease of cloud ERP) to get role-based dashboards to execs and LOB managers. Beginning to use the "real-time" information available in dashboards to make real-time adjustments, e.g. store/ad promotions, inventory allocations.

2C - Automating workflows without any need to speed-dial IT, utilizing so-called "no-code" and "low-code" tools. Personalizing screens and views with the same tools, without mucking up future upgrade eligibility.

2D - Labor re-allocation into higher-value tasks - One of the first strategic benefits we see is the welcome realization that prior administrivia across roles has been automated by the new system. In turn, that allows employees to be more strategic - IF roles can be shifted, and people embrace the change. Big IFs. Headcount reductions might be part of this, but if they're the focus, you're probably doing it wrong.

2E - Data visibility part three - advanced/automated/intelligent decision support and a sophisticated alerts infrastructure. Very few close ERP customers are here yet.

3A - Platform benefits, add-ons, and industry functions - the realization that outside of configuration options, there are nifty ways of extending functionality via the vendor's app store and ISV partners, allowing for a more vertical approach to ERP without the trap of customizing.

3C - Integration of external data sources with cloud ERP transactional data, primarily for decision making purposes and predictive algorithms. A recognition that a big chunk of key decision-making data is outside the internal system, from IoT sensors to social sentiment to weather data. ERP vendors are, for the most part, late to this party, doing their customers a disservice and making value realization harder.

3D - Building "next-gen" business models from this data - for example selling access to certain data to suppliers as a service. Or launching new digital business units as a result of insights generated from the data.

3E - Being able to directly tie your ERP system usage into your customer success KPIs.

Are ERP vendors holding customers back from achieving any of these? It depends on the vendor. Most vendors are still adding to their "AI" capabilities, but are at least delivering something of value. Embedded/role-based analytics are still a rarity. Low-code tooling is an area where some excel, but not as universally as you'd think, given the high-pitched keynote enthusiasm. Also, platforms for extensibility and app-building are not created equal. Few so-called "customer success" programs are truly meaningful, but that is changing.

The best ERP vendors are not holding customers back from achieving these benefits - at least in terms of the software itself. The one exception I'll flag: collaboration. ERP vendors simply haven't figured out the best ways to help users collaborate around transaction flows.

It may be harder now. Do you integrate with Slack, Teams, Google, and/or Workplace by Facebook? Do you allow those vendors to pull in your screens and data as well? Do you invest in your own messaging platforms, or integrate best-in-class? Will teams live in the collaboration tools, or on your screens? These are important riddles.

My take

These stages are are less of a framework and more of a nudge: for customers, vendors, and their SIs. Have you come close to achieving these? If not, why? ERP vendors might think they need to double down on AI. Perhaps. But the best thing they could do, if they want to be relevant to transformation plans and avoid ring-fencing, is to get as many customers into the advanced benefits areas as possible.

The more customers achieve tangible benefits after go-live, the more relevant ERP becomes. I wasn't the one who started the "thrive after go-live" ERP debate. That nod goes to my much-missed friend Michael Doane, who passed away before he lost his passion to deliver better projects. As I wrote in my tribute to Doane:

While Michael was resistant to cloud technology, there was a massive twist. He absolutely anticipated the driving force behind SaaS today: customer success... Michael would never stand by a troubled project or flawed software release and say nothing. He would advocate for the customer. He would push to extract deeper lessons, building those lessons into models until they make sense. And he would expect no less from us.

This piece is not really about the future of ERP, and how vendors should be architecting that future - though that's an article Clive Boulton has been imploring me to write. But I'll say this much: if ERP vendors don't get better at delivering on the benefits articulated here, the future of ERP won't matter. ERP will be relegated to a shrinking, back office data repository.  If that happens, I might have to finally change my Twitter handle from JonERP. Right now, I'm keeping it, because you can't possibly have customer success without transactional and supply chain visibility.

I'll say this much about the future of ERP. I don't believe it will be recognizable as such, except in the SMB space, where integrated suites will still be prioritized. In the large enterprise, I see the future of ERP as modular, platform-based, perhaps microservices-based - where companies can build, extend, and plug and play with whatever best-of-breed apps their users need. ERP vendors without a great data platform and apps marketplace/user community story can look forward to being ring-fenced. The mid-market will resemble the large enterprise, but with more out-of-the-box expectations for industry functionality mid-market companies don't have the resources to build. The same for embedded AI, as mid-market companies won't be able to fund massive data science teams.

As I wrote in response to Brian's ERP-must-change piece:

I believe the future of ERP, if there is one, is deep/rich verticals - a cloud industry backbone, if you will, NOT a back office (this may sound bloody obvious but remember, ERP became entrenched as a [mostly] horizontal play).

Now ERP must become a logistical backbone (err, platform, plus community plus industry experts) that plays quite nicely with whatever third party tools the business wants - and plugs into whatever native AI or data platform the ERP vendor provides (or else their robust APIs). Does that sound like many ERP vendors you know today?

On that happy note, let's hear from cloud ERP vendors who will share their maturity models. And if you have customers with advanced use cases, let us know and we'll get on them. The best way for vendors to disagree with my position here is to put those forward.

 

End note: if you have a stake in these issues, particularly in the large enterprise sector, I strongly recommend you check out Josh Greenbaum's Customer Success, Vendor Empathy, and the Problem of Extreme Heterogeneity, which frames the business problem/context cloud ERP must engage with.

Updated, 7am UK time, September 25 with a number of tweaks for reading clarity, plus subheadings and podcast embed.