Enterprise resource planning (ERP) suites have traditionally been the information technology (IT) and process orchestration underpinning and controlling the most important parts (the core) of a company’s value chain. In many cases, on-premise ERP has been heavily developed and customised for the organisations line of business (LOB) functionality to be implemented, and vendor ERP systems have become megasuites and monolithic.
ERP megasuites no longer cut it in the digital age, they are not flexible or agile enough and cannot be changed at a pace that allows the modern organisation to meet the challenges of digital disruption. There are also many challenges for the modern IT organisation which have developed from consumer digital technologies and the pace required to adapt IT to an ever growing business need. For example, challenges with shadow IT emerging, bring your own device (BYOD), security in the cloud, technical complexity, staffing, and as always, business and IT alignment.
This rapid change has driven modern enterprises towards a postmodern ERP environment and several approaches are starting to trend. Selecting the correct approach, at the required pace is paramount for the future of the organisation.
Develop a Postmodern ERP Strategy to select the approach to ERP that:
- Aligns to the organisations strategic direction and digital business strategy.
- Considers new potential areas for digital technologies and models and provides opportunity to adopt them. Using strategic tools such as Gartner’s Pace Layered Application Strategy.
- Considers the business and IT capability and competencies, where they are best placed, and where relevant using strategic enablers such as Gartner’s Bimodal IT Strategy.
- Enables the business to transform using new digital technology and innovation. Using methodologies such as the business transformation management methodology (BTM²) from the Business Transformation Academy (BTA) to increase business transformation maturity and success.
- Allows for efficient development and implementation while sustaining business and IT excellence.
Develop a Postmodern ERP Roadmap that is aligned and incorporated into the organisations strategic plans, operating models, and is a key enabler to any business transformation initiatives. Highlight key business value and benefits, IT architectural changes and business and IT capability and maturity requirements on the roadmap.
Regularly Review, Update and Communicate the postmodern ERP strategy and roadmap with line of business (LOB) stakeholders and strategic partners as part of a structured organisational planning process.
Analysis leading to my recommendations
What are the Demands on Business in a Digital Age?
In this digital age, technology trends such as social media, big data, cloud computing, mobile, robotics, in-memory computing (IMC) and the Internet of Things (IoT) are evolving at speed. The reliability, connectivity and interconnectivity of devices to online services, and new or evolved digital business models are allowing, and demanding, enterprises to rapidly change the way they operate.
Businesses now compete in a chaotic, fast moving, hyper connected world and only the most forward thinking, nimble footed businesses are likely to survive these unprecedented challenges. An effective response to this digital disruption in many sectors and organisations is to look to reinvent their business models using digital technology.
With a new value proposition, an organisation’s business, IT and ultimately ERP approach will need to change. Whether it be reinventing, remodelling, evolving, innovating and transforming the organisation, demands on IT and ERP are going to be higher than ever.
The role and goal of IT is to enable competitive advantage, while reducing operational costs and risk. In the digital age the key demands on business, and therefore IT and ERP, require the ability to drive value, at speed, in an iterative and innovative way, while still reducing costs, risk, and keeping the the business as usual (BAU) infrastructure and processes running.
ERP has traditionally meant a set of core activities that helped an organisation manage its business, underpinned by tightly integrated applications facilitating the flow of information in order that data-driven business decisions can be made. The initial core functionality being transactional processes within finance, procurement, manufacturing and material requirement planning (MRP), sales processing and human resource management (HRM).
As the ERP vendors developed their applications suites functionality moved to line of business (LOB) applications such as customer relationship management (CRM), supplier relationship management (SRM) and product lifecycle management (PLM), and industry specific application modules, such as professional services or retail. This has led to the ERP megasuite, a one stop shop, built upon an integrated platform of infrastructure and technology, controlled by the vendors, with a whole ecosystem supported by system integrators and consultants.
Digital demands expand the many challenges with the traditional ERP approach. Digital projects need to be implemented fast and agile in nature, require new skills, and not be reliant on one vendor or platform. Traditional ERP investments with long complex programmes and projects, delivered predominantly in a waterfall method, which take years rather than months, weeks or days to implement do not meet that criteria. Too much rigidity, not being user-friendly enough with a poor user experience (UX) have been common ERP complaints by LOB owners and users.
In spite of the issues set out above, most medium to large organisations have successfully implemented ERP suites across their organisations and now rely heavily on the process standardisation and automation that they have enabled.
In recent years the vendors of ERP suites have used digital technology and built the applications to deploy as software as a service (SaaS) and are hosted in a cloud-computing environment that allows scalability, additional functions, and on-demand services for the enterprise.
Digital technology availability such as cloud-computing have led to new trends in the way in which organisations approach ERP. Gartner has titled this “Postmodern ERP”, defining a more federated, loosely coupled ERP environment with much (or even all) of the functionality sourced as cloud services or via business process outsourcers.
Rather than an organisation having a single, monolithic ERP environment that lacks benefits offered by nimble cloud based solutions, the linking of administrative and operational ERP capabilities span across a best-of-breed application landscape. This supports greater flexibility and allows the ability to expand to new geographies, to add new products, to acquire companies or to shift business models, with a quicker, more cost effective and agile approach.
However, there are still many challenges materialising from the postmodern ERP trends, especially now that the ERP vendors that used to control the ERP suites and ecosystems are losing that control, because in the postmodern ERP environment there is a hybrid across several ERP suites or applications. These multi-vendor scenarios may also be a mix of on-premise and cloud based applications. This means that more responsibility for integration and data management falls to the organisation, rather than being vendor developed, controlled and managed as part of the suite’s architecture.
What are the Major Trends for ERP Applications?
The major trends and scenarios for ERP applications are best defined using Gartner’s HOOF model which identifies four postmodern ERP scenarios:
- Hybrid reality: Many components of functionality will be delivered as cloud services, whereas others will be maintained on-premises.
- On-premises monolith: Megasuite-focused and implemented on-premises, with a desire to reduce the number of instances and a quest for a “single version of the truth” for all business processes. The ERP strategy is equated with a single dominant ERP vendor.
- Outsourced everything: Adoption of business process outsourcing (BPO) for ERP processes. This is driven by newer, process-enhancing technologies and services (PETS) and cloud-based business processes (business process as a service [BPaaS]).
- Flip model: All ERP capabilities have “flipped” to the cloud and are delivered as cloud services, often as smaller-footprint-domain or specialised suites.
All of the above scenarios are postmodern ERP. They all exist today and any one may be viable for an organisation. It all depends on the business strategy and objectives of the ERP initiative.
A two tier trend has been prevalent for many years in larger organisations where the global and parent companies centralised services are run on one ERP (e.g. SAP) and regional systems have another ERP (e.g. MS Dynamics AX), but this has been more driven for local autonomy and in the on-premise (stability and control) model. It becomes the postmodern hybrid reality when ERP in the cloud is introduced (agility and cost reduction).
How Should Enterprises Select the Approaches to Postmodern ERP?
With the pace of change in business and technology, and the size and nature of investments made in ERP, The CIO, Senior Director/s or Manager/s responsible for the ownership of ERP in the enterprise should;
- Develop a postmodern ERP strategy,
- Develop a roadmap,
- Review and communicate the strategy and roadmap, regularly.
Develop a Postmodern ERP Strategy
The development and regular review of a postmodern ERP strategy should be performed as part of the business and IT strategic planning process.
This strategy should be consistently aligned to the strategic direction of the enterprise. It may seem obvious, but it is crucial that the IT and ERP strategy is truly aligned to the businesses strategic direction. Direct involvement in the organisation’s strategic planning process works best, and looking beyond the business as usual direction is advised.
Assess any potential disruption to the industry sector and organisation with the executive and senior line of business (LOB) ownership. Qualify and quantify the level of possible change any potential disruption could make, and understand it as an opportunity as well as a threat, investigate and plan risk mitigation. Think beyond today and the current reality, remembering that barriers that exist today, may be opportunities tomorrow.
Clearly define the company’s overall strategy and therefore the ERP and IT strategy. Use Gartner’s Pace-Layered Application Strategy to help understand the application portfolio today, and what is required for the future. Pace layering applications into each layer: systems of record (foundation), systems of differentiation (industry or sector unique) and systems of innovation (with and return on investment (ROI) of 6-12 months).
Define the ERP role and purpose, the business capabilities required, the IT capabilities required, and assess the internal competencies. Consider and determine the ERP support organisation, development, and implementation resources. Use Gartner’s Bimodal IT strategy which is the practice of managing two separate, coherent modes of IT delivery, one focused on stability and the other on agility. Develop the IT operating model to support the postmodern ERP strategy.
Analyse the actions of the main ERP vendors, review their architectural roadmaps, product enhancements and technology acquisitions. Describe your ERP architecture, and your vendor sourcing strategy moving forward.
Describe the ERP governance process, analyse and capture risks and mitigating factors.
Prioritise the requirements in the short and long term, capture business value and benefits, when and how these will be realised and measured. This will later assist in the development of a roadmap.
Other areas to consider are: The markets in which your organisation serves, product and/or service catalogue and lifecycle, maturity and culture of the business for change, how unique is the business, how standardised is the business across regions, business units, geography, and what are the “real” competitive differentiators.
By working through and clearly defining the ERP strategy as outlined above, the required postmodern ERP approach should become obvious. It may be that over the short to long period your approach will need to change. Use the Gartner HOOF model to help define and develop a roadmap.
Develop a Roadmap
Develop a postmodern ERP roadmap covering both short and long term horizons, with review dates aligned to how your organisations strategic planning is performed. Align the activities in the ERP roadmap to the business strategic plan, and integrate the roadmap with any business transformation planning. Use a methodology such as the business transformation management methodology (BTM²) from the Business Transformation Academy to follow a holistic approach to business transformation management.
Outline on the roadmap when business value and benefits realisation (financial targets) will occur. Align this with all ERP programme and project business cases and value management activities.
Highlight IT architectural changes and milestones on the roadmap, develop this with your enterprise and solution architect (SA) plans and future state documentation. Plot business and IT capability maturity levels and changes onto the roadmap, including whether these will reside outside of the organisation.
Regularly Review, Update and Communicate
Regularly review and communicate the ERP strategy and roadmap with line of business (LOB) stakeholders and strategic partners. Involve ERP and IT vendors with your LOB owners, use business relationship management resources through IT business partnering to review and update the roadmap as part of their responsibilities. Make it a living roadmap, that maintains the attention of the business and executive.
Amend, update and communicate any changes in a structured way, ideally aligned to a corporate or information sharing process. Keep all stakeholders engaged in the roadmap so they can see the drivers, benefits and challenges that need to be overcome to deliver the ERP strategy and support delivery of the business strategy.
Developing a postmodern ERP strategy by engaging with the business will allow the right approach for postmodern ERP to be mapped out and plotted onto a roadmap, with the ability to be amended, as required, in an agile way, to enable the organisation to succeed.
These are exciting times as new digital technologies have enabled a postmodern ERP landscape, allowing businesses to speed up how their administrative and ERP applications and processes are changed and adopted, at the right pace to keep the organisation competitive.
If executed well, ERP can stay agile to enable business and digital strategy in a timely manner, rather than the ERP solution delivering to requirements that have become out of date by the time the solution has been delivered into the business.