What constitutes modern ERP? Reacting to the views of Unit4 CEO Mike Ettling

The future of ERP is a hotly debated topic, on these pages and elsewhere. Some say ERP has no future. Others are beyond bullish.

I believe the future of ERP will play out very differently for SMBs, midmarket, or large enterprise. But, I stand by this statement:

The future of ERP as a back office system of record is a bleak commodity. The future of ERP as an operational backbone for your industry - that's where ERP gets interesting.

But what does the reality look like today? When it comes to the future of ERP, you can make the argument that mid-market cloud ERP vendors are actually leading the way - not the large enterprise ERPs that are household names. Why? Because the market requires it:

• Mid-market ERP vendors are more likely to be multi-tenant/next-gen architectures, often without a large legacy install based to serve - or upgrade.
• The industry requirements of mid-market companies force cloud ERP companies to push into industry functionality as a must-have (Larger enterprises are more likely to build their own industry tools).
• The same dynamic holds for AI and data science, with mid-market companies unlikely to have data science teams in house. They expect their ERP to be automated, with "intelligent" processes embedded. 
• Large enterprise ERP projects tend to have international and regional complexities. This makes projects more elaborate, and business cases more difficult. Multi-year ERP upgrades are a hard sell these days. Large companies put their transformation dollars less into ERP upgrades, and more into customer (and supplier) facing projects. For a revealing look at this, see my colleague Phil Wainwright's IFS - customers don't buy acronyms, they want to solve problems.

The characteristics of agile midmarket ERP - Mike Ettling's list

These issues came up with Unit4 CEO Mike Ettling during their analyst event in Boston (see my roundup, Unit4 CEO Mike Ettling on cloud adoption, and the non-negotiable principles of vertical ERP). It all started via this intriguing pre-event story by Wainewright, where he got Mike Ettling to detail his characteristics of midmarket ERP. With some tweaks, you could call it the future characteristics of all modern ERP.

And why does "modern ERP" matter? Because if your customers' ERP isn't modern, well - it's going to be ring-fenced. "ERP" will lose its place in transformation discussions, except as a data repository, and shrinking back office footprint.

So what are the characteristics of "more agile" mid-market ERP, as Ettling defines them? As Wainewright put it:

Characteristics of agile midmarket ERP

I was speaking to Ettling in the run-up to the vendor's annual Experience 4U digital event next month, at which the vendor is expected to extend the capabilities of its ERPx platform. I asked him what he believes are the key characteristics of this new generation of more agile midmarket ERP platforms. Here they are:

• Extensibility - "The ability to create bite-size extensible applications, which co-exist in harmony without dragging down the core application."
• Core functionality - "You can't have all this sexy stuff and compromise on, the trial balance doesn't balance ... no one wants to go backwards on the core functionality."
• User experience - "Having the ability to create very quick-to-use, easy-to-consume user experiences, employee experiences, particularly for the occasional users."
• Smart automation - "You need to be able to quickly configure workflows, you need to be able to alternate between mobile, chatbots, different means of interaction, on the fly."
• Pervasive access - "It's not the thing you've got to go and log into all the time. You can be on Slack, you can be on Teams, you can be wherever, and you can do something and you're interacting with the ERP."
• Open architecture - "The customer might say, 'Well I've already invested in [say] ServiceNow and it's doing X' and we can say, 'Fine .. here's the integration'."

Strong list, but: when I think of the future of ERP, it's missing a few things. I also need a back-and-forth with Ettling on the "core functionality" issue. Yes, that still holds true, but only to a point. I've seen companies in functionality-heavy industries like construction bend on that one.

Why? When you get access to a mobile-friendly, multi-tenant ERP, you might actually compromise on core functionality to get away from your legacy system(s). Instead, you expect the release cadence of SaaS ERP to close that functionality gap over time. Therefore, the so-called "customer success" programs for cloud ERP become critically-important feedback channels. A core functionality gap will only be tolerated if it is quickly and demonstrably closing.

And what about the vertical ERP part? Wainewright has that covered: "The other factor to be aware of in the mid-market is the need to cater for industry specializations. An ERP platform must accommodate each vertical's separate requirements." He quotes Ettling:

They don't have the scale problem. So you can be more agile and nimble. But you do have different complexity requirements, from vertical to vertical, and even within [each] vertical. And that's why again, architecture is important to allow that sort of configuration [and] build some workflow on the fly.

Mid-market ERP is vertical ERP

That's why mid-market cloud ERP companies state their vertical intentions openly (though micro-verticals are where the real (tr)action is). At Unit4's analyst day, they covered chosen verticals - though points of emphasis within those verticals haven't been completely determined yet.

I won't go through all that here - you can check it in my wrap piece. But we need to acknowledge that the term "ERP" doesn't mean what it once did. You don't need to have any manufacturing intentions to find your way into ERP discussions now. Every mid-market ERP vendor defines ERP a bit differently (some try not to use the term ERP at all, unless it's time for the hoop-jumping of analyst quadrants and trapezoids). As I wrote about Unit4:

When Unit4 calls themselves "people-centric ERP," it also defines their limits. They have no intention of expanding into the manufacturing areas core to classic ERP. They see plenty of opportunity to bring cloud HCM, financials, FP&A and micro-vertical functionality to services organizations. Unit4's ERPx vertical focus is professional services, higher education, non-profits and public sector. The biggest go-forward area for ERPx? Professional services organizations, where Unit4's PSA (professional services automation) comes into play.

During our pre-event chat, Ettling said:

I always tell this to customers: ERP is back office plus middle office. If your RFP is for an accounting system, well, yes, there's two competitors which always end up at the table with me, two big guys on the west coast in the mid-market. But the moment you're buying an ERP and you want some middle office functionality, via grant management in grant integrity in the not-for-profit space, or PSA, then those [competitors] disappear.

I prefer to liken modern ERP to an industry backbone. But Ettling's point stands: when you deliver on ERP beyond the back office, you differentiate.

Riffing on modern ERP characteristics - what's missing?

With that in mind, what would I add to Ettling's ERP characteristics list? If we reframe the list to "the future of mid-market ERP," I'll add these:

Interoperable - while mid-market ERP won't be as componentized as large enterprise ERP, there will be a need for crucial integrations. In some cases, even with competitors. "We've got APIs" won't be enough.

Collaborative - "headless" makes Ettling's list, but future ERP needs much better collaboration than we've seen to this point. Do ERP vendors need to build/embed their own Slack equivalents? No. Some have tried - and failed. But we don't just process numbers. We want to talk about numbers. We don't just process orders - we talk about accounts. Discussions that take place, whether it's by video, phone, Slack or whatever - they need to be recorded in the context of relevant accounts and transactions. It's not enough to be "headless" - the headless conversation needs to tie back into the system of record, and be searchable.

Embedded AI and analytics - embedded AI is a given; we can put analytics on here too. Some cloud ERP vendors are content to have modest reporting, and turn over hardcore analytics or planning requirements to third-party best-of-breeds. But when the executive team becomes more reliant on their planning/forecasting tools, versus the ERP software the tool pulls from, well, that's not very strategic positioning for ERP. ERP vendors are in the best position to blur the lines between transactions and analysis - and embed relevant dashboards, alerts, and "next best actions" into the software.

Of these three, we're furthest away on the "collaborative" aspect. Even those ERP vendors that integrate with Teams (and Unit4 is one of them), that's just one more step towards conversations-in-context. Ettling already covered the AI part with smart automation, but it doesn't stop there. Decision support and "next best actions" will make this interesting.

As for interoperable, Ettllng is on board with that too. Unit4 aims to differentiate here, via its recently announced ERPx Industry Mesh.

My take - large enterprise ERP is different

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

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.

So, given all the snark I heap upon the predictions crowd, is this a "future of ERP" predictions piece? No, let's not - but I do think this discussion generates new ERP evaluation criteria. Bonus: it creates tougher questions to ask vendors.

Ettling is wary of the complexities that ERP vendors confront in large enterprise projects. Ettling told me that he sees more opportunity to create truly modern ERP experiences for mid-market customers. For now, I agree with him - and that's what makes tracking mid-market ERP players worth it. Will it all translate to large enterprise? No, but some of it will; that's a story worth tracking.