A recent article published by Tien Tzuoon the CIO Network blog on Forbes’ website suggests that ERP is dead. While it was a well-written article and isn’t necessarily inconsistent with what many other analysts have stated over the last three to five years, I’m still not buying it and still don’t see ERP software going anywhere anytime soon.
Just as a full disclaimer, just as the author of the above referenced article used to be a key employee at Salesforce and may be a bit biased toward cloud and SaaS solutions, Panorama provides ERP consulting solutions and the argument could be made that my biases lean toward traditional ERP. However, at the risk of sounding flippant, I really don’t care what happens to ERP software. It could all migrate to SaaS, the cloud, best of breed solutions, or stay exactly as it is today for all I care. Because we are an independent, technology-agnostic firm, any of those potential industry outcomes will still result in huge opportunities for us to add value to our clients and will do very little to nothing to jeopardize our business model.
With that in mind, I am still not at all convinced that ERP is dead. Let’s set aside all the fears and phobias executives have about cloud ERP software, because those will eventually go away. CIOs will soon realize that most cloud providers can provide more stable and secure solutions than any internal IT organization. However, even after neutralizing those unfounded fears, there are a number of more concerning and real flaws with the assumption that the cloud is going to push ERP systems to a slow and painful death:
This story is a rerun from the ‘90s. I love watching reruns of Seinfeld and Frasier just as much as the next guy, but I know how all those episodes end because I’ve seen them before. During the same era that I was infatuated with Jennifer Aniston on Friends, I was also hearing early in my consulting career that a new “ASP” (application service provider) model was about to kill traditional ERP. It was a pretty compelling story then, but the reality is that ASP – just like SaaS and cloud solutions today – had significant limitations that prevented widespread adoption. For example, lack of flexibility and lack of integration were two big limitations that the ASP model shares with SaaS and cloud ERP. Many companies that did migrate to the ASP model ended up needing to revert back to traditional ERP systems to standardize and integrate their operations better. The side exhibit in this blog visualizes the fact that just as the political pendulum will always swing back and forth between conservative and liberal ideologies, the ERP industry will always swing back and forth between traditional, single ERP systems and SaaS/best-of-breed/cloud/ASP models.
Most companies are still buying ERP. As our 2012 ERP Report, which was published earlier this year, shows, only a small fraction of companies are using SaaS or cloud solutions. It makes sense for smaller or less complex businesses to leverage SaaS technologies for their relatively vanilla business needs, but these solutions simply aren’t ready for the needs of larger organizations. To Tzuo’s credit, his article does accurately convey the fact that most CIOs are looking for alternate deployment options, such as subscription-based pricing and/or ERP systems hosted in the cloud. These are two very real and very viable alternatives for CIOs, but neither movement requires ERP to die. All can peacefully co-exist and provide the best of all worlds to customers.
Business software is not the same as a consumer using Pandora or Facebook. The author suggests that the consumer movement to web-based solutions like Pandora, Spotify and Facebook is proof of the allegedly inevitable enterprise movement to subscription-based and SaaS ERP models like Salesforce and Netsuite. However, this comparison is like comparing apples to oranges – the needs of a consumer posting a Facebook status update is much less complex than an aerospace and defense contractor that has to manage the millions of parts, people, tasks and resources required to build a satellite or aircraft. So while they may be perfect for simple transactions like streaming music, SaaS ERP solutions are nowhere close to being able to handle the types of complexity inherent in most global businesses and supply chains.
Although I’m not at all convinced that ERP is dead, I do agree that ERP is changing and will look very different in five to ten years. Business intelligence, mobile solutions, social media integration, subscription-based pricing models, and private clouds are all exciting new changes to ERP systems. Companies are also getting smarter about how they implement ERP systems – for example, they know not to bite off more than they can chew and they understand they have multiple deployment options. However, SaaS and subscription-based solutions are just one of a portfolio of options available to CFOs and CIOs, and traditional ERP systems will continue to be a viable option for a number of organizations now and in the future. Some of the risks of each are illustrated below:
At the end of the day, the argument over SaaS vs. cloud vs. traditional ERP is simply noise that masks a bigger and deeper problem: most enterprise software initiatives fail. Call it what you want and use all the cool technologies that you want, but your project will still fail if you don’t address the real differentiator between software success and failure, which is more related to business processes and organizational change than it is to software. The sexiest and slickest SaaS software in the world doesn’t matter one bit until those bigger issues are addressed. I can’t predict the future and I don’t bet, but if I could or did, I would put big money on that problem not being automated in my lifetime. So instead of discussing whether or not ERP is going to die, we should be asking: “Are enterprise software implementations ever going to stop failing?”
For further discussion of this topic, please join me for tomorrow’s interactive webinar, Cloud vs. Traditional ERP: Which is for You?