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The Reports of the Death of ERP Systems Have Been Greatly Exaggerated

Many industry pundits have been predicting the death of ERP systems for quite some time now. Back in 2001, the TechRepublic web-site conducted a survey to determine respondent’s expected lifecycle of ERP software. Perhaps not surprisingly, the poll – essentially a loaded question – revealed that 78% of respondents expected ERP systems to be obsolete in 10 years or less.

These expectations are not surprising for a number of reasons. First of all, ERP implementations are challenging, which would suggest that the industry can’t continue as it has for the last few decades. Second, cloud and SaaS ERP systems are changing the paradigm by giving organizations faster, more flexible, and often times, more cost-effective deployment solutions, which has already threatened the traditional establishment of ERP vendors. Third, and as outlined in our 2013 ERP Report, most ERP implementations cost more than expected, take longer than expected and fail to deliver expected business results, so it is reasonable to assume that CIOs and other executives want something less complicated, costly and risky than current ERP systems.

While it is probably safe to assume that something needs to change in the industry, it is also not likely that ERP systems are going anywhere anytime soon. Not only did the detractors have it wrong back in 2001, but those that think traditional ERP systems are going to die anytime soon are misinformed as well. Here are a just a few reasons why ERP isn’t and won’t be dead anytime soon:

Emerging markets and startups will always provide a robust pipeline of potential ERP customers in the future. While it is widely recognized that most Fortune 500 companies in North America and Western Europe have already adopted ERP systems – leaving few “new” ERP customers in this relatively small group – there are hundreds of thousands of smaller organizations and startups that will someday need ERP systems to scale their organizations. In addition, emerging economies are investing heavily in their business and government infrastructure, which often translates to more investments in ERP software. These two trends will likely create potential ERP customers for years to come as these emerging organizations invest in enterprise systems to scale for growth.

Businesses are constantly changing. Businesses are constantly changing, growing, acquiring, being acquired and entering new markets, but ERP systems rarely keep up with these rapidly changing business environments. As illustrated in the graphic below, most organizations do not proactively invest in their existing ERP systems to keep them aligned with never-ending business changes, which inevitably leads to the need (or want) to invest in new ERP systems down the road as the systems become too misaligned with the business to be effective.  While the “real” answer is for companies to keep better alignment and get more mileage out of their ERP investments, we have yet to see a meaningful percentage of organizations do so.

misalignment

ERP systems are constantly changing. Even if organizations were to keep their ERP systems perfectly aligned with evolving business needs, enterprise technology is going through rapid change as well. Think about the ERP of 10 years ago: SaaS wasn’t nearly as widespread as it is now, user interfaces weren’t built to emulate social media platforms as many are now, and sophisticated configuration and integration tools were few and far between. Add the fact that vendors can only support so many back versions of the software and you have a recipe for a perpetual cycle of ERP software upgrades and purchases. While it is safe to assume that ERP is going to continue changing significantly in the next 10 years, it is also fair to say that systems that are cutting-edge today are likely to become obsolete and lacking in vendor support in the future.

ERP vendors are always consolidating on one hand and satisfying niches on the other. There are some that think the vendors of the future are Salesforce, Netsuite, Workday and other niche, SaaS ERP vendors. This may or may not be true, but longer-term, there will always be a pendulum swing between consolidation and industry niches. In other words, while larger ERP vendors like Oracle and Infor grow and acquire other companies in an attempt to essentially be everything to everyone, smaller niche players will pop up and fill the voids in specific industry or functional niches. As more companies leverage these niche providers, these same companies will eventually need the standardization and consolidation afforded by single, “big” ERP systems. Although the pendulum will always swing back and forth between large ERP vendors and niche providers, ERP as we know it is not likely to completely die as a result.

cycle

Government regulation creates even more change for global enterprises. For better or for worse, the world’s governments will continue to add regulations, red tape and complexities to organizations across the globe. In the process, they will determine exactly how for-profit and government entities need to operate and report, which will inevitably increase demand for ERP systems that can help provide this compliance. Unless organizations decide that they want to reinvent the wheel by creating their own custom systems to handle these complexities rather than leveraging off-the-shelf software, ERP systems are going to provide the answer for many organizations for many years to come.

The only constant that can be predicted with 100% certainty is change. Each of the above points underscores the degree of change that enterprises experience now and in the future – and change is perhaps the single most important indicator of an organization’s likelihood of implementing a new ERP system. The flavor of the week may change – right now, SaaS, business intelligence and mobility are the big buzzwords – but ERP systems are not going to die anytime soon. If anything, these changing trends and buzzwords create a perpetual market of ERP customers in the future.

Learn more by downloading our free, on-demand webinar, What the Emergence of SaaS and Cloud ERP Technology Really Means for Your Organization . . . and Your Job.

Written by Eric Kimberling

After 15 years of ERP consulting at large firms including PricewaterhouseCoopers and SchlumbergerSema, Eric realized the need for an independent consulting firm that really understands ERP. He began his career as an ERP organizational change management consultant and eventually broadened his background to include implementation project management and software selection. Eric’s background includes extensive ERP software selection, ERP organizational change and ERP implementation project management experience. Throughout his career, Eric has helped dozens of high-profile and global companies with their ERP selections and implementations, including Kodak, Samsonite, Coors, Duke Energy and Lucent Technologies. In addition to his extensive ERP experience, Eric has also helped clients with business process reengineering, merger and acquisition integration, strategic planning and Six Sigma initiatives. Eric holds an MBA from Daniels College of Business at the University of Denver.

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2 Comments

  1. Hi Eric,

    I don’t think there were so many and i never took them seriously, especially when someone from vendors like Zuora predicted the death of ERP.

    That being said, ERP still has a pretty bad reputation, but i think that this happens more because of the selection, implementation and use of ERP solutions, not its features and functions.

  2. Your analysis seems to suggest that ERP ought to be obsolete despite continued investment:

    – failure to meet expectations of time/cost/benefits
    – inability to keep up with business changes (perhaps this is a factor of ERP complexity and customization rather than an organizational deficiency)
    – inability of ERP vendors to keep up with vertical markets > for all the noise made by these vendors, there are many vertical markets in which niche vendors have much better solutions

    Not to mention the “maintenance” model used by ERP vendors rather than delighting customers. We’re starting to see holes in ERP revenue growth. There has been a lack of organic growth, but recent announcements suggest that major vendors can’t acquire fast enough to achieve the same growth as niche players. Perhaps that’s just a blip and the ERP market will evolve elegantly to SaaS and social collaboration.

    My sense is that the ERP market is “obsolete” by the definition used by Marshall McLuhan. McLuhan suggested that obsolete doesn’t mean no longer used. He suggested that obsolete technology often takes a different role (i.e. AM Radio with weather and news). Newer technology becomes the driving factor (cloud, mobile, big data, social media, modern architectures). There doesn’t seem to be any argument that these new technologies are driving innovation.Legacy technology adapts to this – McLuhan suggested that the detective novel was a reaction to the telegraph. One could make a similar argument about the effects of social media resulting in more “reality” television.

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