Gartner, Nucleus on shaking up monolithic ERP

Profile picture for user slauchlan By Stuart Lauchlan February 12, 2014
Summary:
Shaking up monolithic ERP

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Any report that contains an admission that Gartner made a mistake has to be worth a glance. And if that report comes from Gartner itself, all the more so!

Before anyone gets too excited, the admission is more one of ‘it hasn’t happened as quickly as we expected’ rather than ‘it won’t happen’.

In its report Predicts 2014: The Rise of the Postmodern ERP and Enterprise Applications World, the research firm states:

We believed that the integration of social technologies into traditional applications would occur much more rapidly than has proven to be the case.

But the rest of the report is heavily geared to the notion that by 2016 the heavily customized ERP implementations so common across organizational infrastructures today will routinely be regarded as "legacy ERP”.

And while no-one’s about to chuck existing ERP implementations out overnight, there will be a compelling need for these to be adapted to fit within federated, loosely-coupled ERP environment with much of the functionality sourced as cloud services or via business process outsourcers.

Gartner’s basing a large part of its thinking here on evidence from business executives who it says have expressed “real concern” about the lack of flexibility in their business applications portfolio. As such, Gartner predicates that heavily customized ERP implementations are the next wave of legacy systems.

According to Andy Kyte, vice president and Gartner Fellow:

"Early ERP adopters, particularly large enterprises in energy, manufacturing and distribution industries, are paying the penalty of a decade or more of excessive customization. Businesses looking to improve administration today can take advantage of lower costs, better functional fit and process flexibility offered by blending cloud applications with on-premises applications in what we now refer to as 'postmodern ERP.

"When ERP was in its heyday, CEOs and business executives wanted reliable and integrated solutions, so they seized upon ERP as the way to provide this.

“Requirements have switched to the twin concerns of lowering IT costs and seeking increased flexibility. A system that is not sufficiently flexible to meet changing business demands is an anchor, not a sail, holding the business back, not driving it forward."

With this in mind, Gartner’s recommendations are:

  • Organizations need to develop a multi-year strategy for all significant business applications wit budgetary forecasts for a number of different options which could be followed over the next ten years of the application's life.
  • Put in place a two year plan to market-test all differentiating processes currently managed by heavily-customized ERP modules and see what other optoions are out there today.
  • Make sure you have appropriate and accurate documentation relating to customization and source-code management tools that link the documentation to the relevant modified source code.
  • Review all existing customizations in order to establish whether they add business value commensurate with the cost of support and maintenance.

The cloud generation

Attention also turns to the rise of cloud ERP offerings from the likes of pureplays such as NetSuite, FinancialForce and Workday as well as new cloud offerings from traditional players such as Oracle and SAP.

Gartner predicts:

  • By 2018, at least 30% of service-centric companies will move the majority of their ERP applications to the cloud.
  • By 2017, 70% of organizations adopting hybrid ERP will fail to improve cost-benefit outcomes unless their cloud applications provide differentiating functionality.

Ultimately the research firm postulates:

Longer term (10 years and more), Gartner envisages a scenario where the market "flips" to the cloud. Instead of having on-premises core solutions that are complemented by innovation or differentiating processes being supported outside of ERP, instead all commodity best-practice business processes will be delivered as cloud services.

This will leave a much reduced IT organization, free to focus on building the innovative and differentiating business processes required. On-premises, integrated megasuites will likely cease to exist.

Service-centric industries, such as professional services, business services and digital media, which have not been major users of traditional on premise ERP suites, will leap ahead in cloud ERP adoption.

This leads to a further set of recommendations:

  • Service-centric companies with revenue less than $1 billion should evaluate whether cloud ERP could reduce the costs of managing, maintaining and upgrading ERP.
  • Large service-centric companies should consider cloud ERP as a suitable option when next planning a major ERP investment.
  • Look before you leap - ie check references to identify any challenges experienced with emerging cloud ERP options.
  • Do what suits your needs by understanding the available deployment options (for example, private cloud, public cloud).

The Nucleus perspective

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The impact of cloud ERP is also the subject of a briefing note from Nucleus Research - What NetSuite's growth means for ERP - which picks up on that providers recent announcement of a 34% revenue increase. Nucleus comments:

This growth, along with the growing momentum of other cloud ERP vendors, shows decision makers across verticals are increasingly looking to the cloud to manage their business-critical transactions and data. Adoption of cloud ERP drives competitive advantage for companies by reducing initial and ongoing costs and driving greater value and agility over time.

The research firm argues that cloud ERP is changing the way financial decision makers think about their ERP stacks:

  • Increasing adoption of cloud ERP and other cloud applications have shown they have lower initial and ongoing costs than other applications and simply deliver better ROI
  • Cloud ERP adopters can take advantage of upgrades and enhancements, or change the configuration of their ERP instances, over time without the disruption associated with changes in a traditional on-premise ERP instance, so they can maximize value from their ERP investment. The demand for integration of emerging capabilities on the social, mobile, and big data fronts have made agility a more important application attribute.
  • Other cloud applications in the consumer space have helped to educate both companies and individuals on the reliability, security, and availability for cloud applications.
  • In general, decision makers have discovered that they have more options. As vendors have become more visibly accountable for their customers’ deployment failures, and third-party support providers such as Rimini Street have shown customers they’re not locked into maintenance contracts, buyers have more power over the lifetime of their engagement with a vendor.
  • The lower switching costs associated with cloud applications, faster upgrade release cycles, and greater scrutiny of the return from traditional license maintenance investments have enabled smart decision makers to shift the ERP negotiation process.