Nudge to ERP System with the Evolution of Line-of-Business suites and Best-of-Breed Point Applications
Are Line-of-Business suites and Best-of-Breed Point applications signaling a move away from ERP?
The growth of Line-of-Business suites – such as SuccessFactors HCM suite–and Best-of-Breed point applications – like Salesforce, Ariba, and Fieldglass–are becoming ever prominent after the surge of Enterprise Resource Planning (ERP) suites in the 1990s and 2000s. The lines-of-business and business functions are getting more empowered, less reliant on IT, and through operating expense (Opex) purchasing of subscription-based Software-as-a-Service (SaaS) solutions are beginning to acquire their own systems. This begs the question, is this signal that there is a move away from comprehensive integrated ERP systems?
A brief history of ERP systems
The Enterprise Resource Planning (ERP) system rose to prominence in the early 1990s as organizations looked to increase efficiencies across their businesses. Enterprises whose activities spanned multiple functional areas–like manufacturing companies, for example–needed integrated and real-time management of their manufacturing activities, inventory, sales and distribution network, customer accounts, procurement, finance, time clocking, and employees. ERP systems also saw heavy adoption in the late 1990s to mitigate the proposed Y2K bugs that were anticipated in older software (although ultimately these Y2K bugs proved to be unfounded).
“While there are a host of point applications and functional suites, there is yet to be a leader in Cloud-based ERP software that can meet the needs of large, global enterprises”
Software Purchasing Trends
Fast forward 25 years and the business world are in a very different place. Markets and the companies operating in those markets are in a constant flux, and Cloud-based technology is being rapidly adapted to suit specific business needs. Cloud is becoming a real disrupter to enterprise IT and is changing the landscape of ERP. The new-found purchasing power of the lines-of-business coupled with the consumable procurement of Cloud software–gone are the days of acquiring perpetual licenses and hardware at a great upfront costs–are making access to Cloud software available outside of IT and procurement teams.
While there are a host of point applications and functional suites, there is yet to be a leader in Cloud-based ERP software that can meet the needs of large, global enterprises. As a result many business functions are turning to specific non- ERP solutions to meet specific needs. Customer Relationship Management (CRM), Finance, and Human Resources (HR)–also known as Human Capital Management (HCM)–are just three of the areas that are swiftly adopting their own solutions. Salesforce has become the staple CRM solution of many organizations, while SuccessFactors HCM suite (HR) and Workday (HR/ Finance) are replacing SAP ERP HCM, PeopleSoft, and other legacy HR systems. So with this trend looking to continue, what is the impact on your organization?
Disparate systems or inter-connecting Best-of-Breed?
There is a lot of value of using specialist Best-of-Breed applications and suites, such as specialty functionality that might be unavailable elsewhere or not mature enough to justify the investment. Some examples might be deep competency evaluation–which is a weak area of many large vendors–or CRM where niche vendors offer superior functionality.
Although these applications can be worthwhile investing in, when purchasing many applications or suites there are a number of factors that are worth considering. These include but are not limited to:
• Maintenance and in-house skillsets
• Integration and data flows
• User experience
• Change Management
Managing a larger number of systems by different vendors with different support models and different methods of maintenance requires greater governance, procedure, and skillsets. Is your IT organization ready to invest the time and money to manage a larger number of systems and to ensure it has the right people with the right skills to support this?
Integration becomes a big part of this support. It is critical to ensure the right data flows between systems and in some instances–such as a HR suite–there may be multiple interfaces required. While most IT teams are adept at creating and managing interfaces between systems, the maintenance and monitoring of so many interfaces can become a headache for even the largest organizations.
What about operating these applications? Too many different entry points or different user interfaces are only going to confuse users and turn users off from wanting to use some of the systems. Some vendors that offer point solutions are beginning to roll out a common user interface technology across all of their applications. SAP are currently in the process of making their SAP Fiori user interface technology available for their ERP and Best-of-Breed solutions to create a unified user experience for users of the different applications. However, this is not going to be available for all systems and so the challenge remains.
Related to this is the training and change management of introducing new systems. Employee’s resistance to change is going to become much greater as the varieties of systems are introduced. That said, a number of systems may not be used by all employees and so reduces the risk of rejection or low adoption. Ensuring that new systems are intuitive to use– particularly those that are not touched often–can reduce the burden on adoption.
The changing role of IT
How does the role of IT change with these systems? Managing systems is going to remain the top priority, but customization-heavy activities should reduce as Cloud systems introduce simpler UI-based configuration and extensibility. This changes the governance role as system changes are simpler to implement, and thus can be performed by less skilled individuals who may not be as used to the technical governance. Moreover, sight of integrations and additional monitoring is going to be needed.
Having a business and solution architect, and analysts capable of overseeing and understanding the technical and functional landscape of your organization are going to be critical to maintaining a holistic balance. Understanding data flows, touch points, logic, and more will be essential to ensuring that new systems can be brought into the landscape.
Specialty suites and Best-of-Breed point applications are on the rise and the savvy CIO needs to understand the impact of these and how to enable their IT organization to govern and manage them. ERP systems still offer value, and Cloud-based ERP systems are becoming more mature–if not generalist– systems. However, trends are showing a move away from ERP for certain functions like CRM, Finance, and HR but not a significant change for core functions like sales and distribution, sales relationship management, and materials management. Finding a way to unify ERP and Best-of-Breed applications/ suites together without masses of Band Aid will become the new challenge for enterprises, until the next generation Cloud-based ERP systems are fit-for-purpose for the large, global enterprise. Until that time, you’ll need to plan carefully and ensure that your organization is ready for the new Cloud era.