The rock band REM once sang, “It’s the end of the world as we know it, and I feel fine.” After a lifespan of over 50 years, we’ve reached the end of “ERP software” as we know it as well.
As a company that has built an entire business around providing independent ERP consulting services, it may seem ironic that we are officially calling ERP software dead on arrival. It may come as a shock to some, but it’s not really much of a surprise if you look at the history of ERP.
A Brief History of ERP Systems
Beginning around 1960, Material Resource Planning (MRP) was developed as an early iteration of ERP to help manufacturers better manage and automate their manufacturing and inventory management processes. The evolution of this software continued through the 1980s and 1990s, when the rise of MRPII extended its reach to integrate outlying functions within these companies. This included warehouse management, financial reporting and order entry. This was the birth of ERP as we have recently come to know it.
The late 1990s saw the rise of SAP, Oracle, JD Edwards, and other key ERP vendors, which began dominating and integrating the complex needs of Fortune 500 companies. The 2000s saw the rise of Tier II providers, such as Microsoft Dynamics, Infor, and Epicor – some of whom have moved up to become Tier I providers.
The Current ERP Landscape
Over the last 10 years since Panorama Consulting was founded, there have been a number of trends that have foreshadowed the current death of ERP. For example:
- Consolidation among current ERP vendors. There are smaller barriers to enter in the market, but the proliferation of players has been leading to more consolidation than in years past.
- More options in the market. These days, companies don’t need to settle for a behemoth ERP system. Instead, there are a multitude of options: SaaS, cloud, on premise, best of breed, point solutions, business intelligence and a host of others.
- Enterprise software is available to companies of all sizes and industries. When I first started in the ERP consulting industry 20 years ago, ERP was mainly for bigger manufacturing companies. Now, companies of all sizes and industries have a wide variety of viable options.
- ERP systems have a bad reputation. For all their upside potential, too many ERP implementations still fail after all these years (see our 2016 ERP Report for the most recent data).
- A weak global economy has made companies too risk-adverse to take on ERP implementations. Just as we saw during the financial crisis of 2008-2009, companies have pulled back on capital spending over the last several months. There is a lot less tolerance for big, expensive, time-consuming and risky ERP implementations that are historically notorious for blowing past time and cost budgets, while at the same time under-delivering on business benefits and ROI.
This has all coalesced into a market that does not bode well for many ERP systems. In fact, this long-developing landscape has led to the inevitable destruction of ERP software as we know it.
What this Means to the Future of Enterprise Software
Don’t fret: all is not lost. The future of enterprise software is brighter than ever – it just entails a much different landscape than many CIOs and ERP consultants are ready for.
Here are a few things that CIOs and executives can do to navigate the new realities of the post-ERP world:
- Make Enterprise Strategy Front and Center. With so many options in the marketplace, a plethora possible directions to go and the many pitfalls of a rapidly-changing landscape, your enterprise strategy should determine which direction you pursue. In the past, companies jumped head first into an ERP selection and implementation process, but now, smart companies are defining a smart enterprise strategic roadmap to drive technology, process and people decisions.
- Technology is an enabler of business process improvements, organizational changes and overall business transformation. As mentioned above, ERP implementations have long under-delivered at too high of a cost – mainly because many executives focused too much on technology rather than processes and people. Now, the smarter and more successful organizations are viewing enterprise technology as just one component of an overarching business transformation.
- When in doubt, punt on the technology. In times of uncertainty, doubt, and tight budgets, the last thing you want is to over-invest in a large ERP project that may not deliver a strong ROI. That explains why we are seeing so many companies punt on their software decisions and instead ask us to “get their houses in order” by improving their business processes and organizational structures. You can always implement technology later, and people and process changes can typically yield more immediate results at a lower cost, so there is no harm in waiting to potentially bite off more than you can chew.
This may seem like bad news for some, but it is great news for most organizations. Organizations no longer need to feel as though they are backed into the corner of a “big bang” and hard-to-digest ERP implementation. Instead there are plenty of options and lower-hanging fruit to choose from.
Even as a company that has carved out a niche as being the leading independent ERP consultants, we recognize the evolving needs of our clients – and these changing needs have provided new ways for us to improve our clients’ businesses via enterprise strategy, business process reengineering, organizational change, business transformation and a host of other areas that both play to our core competencies and meet the evolving needs of our clients.
Enterprise technology will always exist, and so will Panorama Consulting’s role as the world’s leading provider of independent enterprise consulting services, but it is indeed the end of ERP as we know it. And I feel fine.