The idea – or should we say, dream – that there can be a single, integrated enterprise resource planning (ERP) software system that supports all an organization’s business activities is one that should be left to deteriorate and die, much like a decaying and forgotten industrial city. The goal of ERP solutions, and of the vendors who have tried to build these great wonders of computing, has always been a worthy one. Billions of dollars and countless hours have been invested into creating massive ERP solutions with footprints that continue to expand. But much like the forgotten foundations of ancient cities, these mega-software ERP solutions are a dying breed.
Figure 1—RIP ERP
The Dawn of erPL
What is rising in place of the ERP system is the enterprise resource platform* (erPL). The software vendors taking over from the old guard are those that are building the application platform first, and the functionality (such as finance, human resources, or inventory management) on top. These platforms are being developed primarily in the cloud—many are not even available to buy and install on-premise. Companies like Salesforce and NetSuite are continuing to win at the expense of old-school ERP because the new erPL solutions deliver both the business functionality and a full suite of powerful business platform services all on top of the platform and infrastructure layers.
The business platform services offer more than the platform-as-a-service (PaaS) products, but not necessarily the end product delivered by software-as-a-service (SaaS) products. (It is a given that the platforms come with all the infrastructure to support it. In other words, erPLs supply all the infrastructure, including the computing power and storage.) ErPLs provide a more robust layer than what is commonly considered to be a software platform. Traditionally, the term “platform” is used to describe the layer that sits on top of the infrastructure layer and provides software tools and capabilities for developing applications. These platform services are usually things like the operating system, database management system, and application development tools. The cloud PaaS software layer providers deliver this level of platform services.
The erPL providers take the idea of the platform services to the next level—what we will term “business platform services.” The services available on this layer include capabilities such as enterprise social collaboration, document management, global text search, business process management, workflows, reporting, analytics, and other business services. The platform is also designed to deliver a consumer-grade user experience on any device, anywhere, at any time. The erPL is a combination of infrastructure, platform, business platform services, and the application services (see figure 2).
Figure 2—The erPL
When we at TEC certify our products, a large part of the product demonstration is dedicated to reviewing the business platform services offered by the software vendor. The reports on Infor LN, NetSuite (for Distribution), and Priority software provide good examples of what to look for when examining the business platform support provided by a solution.
Don’t need no stinking ERP—What Next-generation Entrepreneurs Are Using
Another trend in enterprise software is to ignore the single vendor, single solution approach altogether. In this case, a business uses a set of best-of-breed applications to meet its operating needs. TEC met with a young Dutch-Canadian entrepreneur, Quinn Roukema, who is the co-founder of a new type of wholesale distributor. His company, E-Retail Society, brings viable products to market in a very short time frame. For example, one of the summer’s top-selling products is the SmoothBag inflatable lay bag. His company was able to set up the branded website, Smoothbag.com, and begin selling online in little over a week.
Roukema runs his business using a combination of recent entries into the SaaS market for small and medium-sized businesses (SMBs). The online store for the products was built using Shopify, the Canadian e-commerce provider. TradeGecko, founded by three New Zealanders, was the choice for order processing and inventory management. Xero was the winner for the accounting software. The final piece of the puzzle is ShipStation, which handles all the company’s parcel and shipping needs. These SaaS solutions are all purchased with monthly subscriptions. The entire business has been set up and operated with virtually no capital expenditures for hardware and software to run the business. Only personal laptops and mobiles are used for the entire operation.
This new generation of best-of-breed applications differs from the previous generation of best-of-breed solutions. Previous best-of-breed solutions were usually built to handle a fairly complete portion of a business process, such as customer relationship management (CRM), human resources (HR), or financials. The new best-of-breed applications are built to provide a focused function and are not beholden to any particular idea of legacy ERP vendors. These discreet services can be easily subscribed to and even dropped or replaced as business needs change.
Did the Ideal ERP Ever Really Exist?
It has long been the dream of C-suite executives to have a single system to manage all of the company’s enterprise application needs. And every ERP vendor has sold the idea of that single, beautiful system in the sky that will meet every need that a company has in the present and for the rest of the company’s lifetime.
However, an all-encompassing ERP system that manages the entirety of a company’s business needs has never really existed. What company with more than a handful of employees doesn’t have more than one application either in-house or outsourced to manage the business? Even small companies find that they need to have a small ERP system for accounting, maybe leverage an external provider for payroll and benefits, and have some ad-hoc request system for managing internal products and/or services. Most large companies have hundreds of other applications that are either tightly or loosely connected to its corporate ERP system.
This isn’t to say that the ERP idea is a bad one. This author supports the concept of a single, unified software solution that would support all of an organization’s business processing needs. That single solution would provide a common user experience, a single data store where all information is updated and available across the organization in real time, etc. However, no matter how much the ERP vendors try, they have never quite been able to keep ahead of the march of innovation across all industries.
That the ERP dream never really panned out is not necessarily the fault of the vendors. In reality, a large portion of the data that has an impact on a company is generated outside of its four walls. For example, a manufacturer is heavily reliant on the suppliers across its supply chain. To be able to determine the precise date on which a complex product is going to be manufactured can require up-to-date information on hundreds of parts. Other industries, such as oil and gas, might be impacted by everything from a traffic accident on a bridge to the weather. ERP vendors have tried to bring in this other data and integrate it with the ERP data, but the number of data points and dependencies has always outpaced the speed of the ERP vendors.
The Power of Platform Business Models
It is no secret that platform business models built on technology have proven to be the biggest story of the 21st century. The platform businesses include social networking platforms like Facebook and LinkedIn. Skype and WhatsApp are examples of communication platforms. And Uber and Airbnb are probably the disruptive platform business models. A blog discussing Uber statistics notes that Uber now has more than 160,000 drivers and more than one million daily trips, on average. Airbnb’s website shows it operating in over 191 countries and more than 34,000 cities. It has grown to this size without owning a single property (other than those for its operations). The reason platform business models can grow at exponential rates is because of the multiplying effect of all parties on the platform who can participate and create additional value.
As mentioned above, the Salesforce and NetSuite products were developed with the technology platform at the heart of the product. Most of the legacy ERP products have been developed with a specific function in mind, not the overall platform. The openness of the platform extends beyond the services delivered by the platform and needs to be open to developers and non-technical business users to create additional value for the overall platform. Most vendors do deliver the business platform services we discussed above as part of their solution stacks, but few deliver these on a unified platform in the cloud. Some have moved their legacy on-premises solutions to the cloud, but these weren’t built for the cloud first.
As shown in figure 2, this unified erPL needs to include the full stack of services, from infrastructure-as-a-service (IaaS) on up through to SaaS. Other vendors have been developing their erPLs in the same vein as Salesforce. For example, Infor has been very aggressive in recent years and has developed an entire suite of business platform services that are available in the cloud. Microsoft’s recent introduction of Dynamics 365 is further confirmation of the platform direction. Dynamics 365 brings ERP and CRM together with services for Office, Power BI, and Cortana in a single cloud platform. Other players such as Acumatica, Plex, and Priority software are delivering solutions in the cloud with more of a services approach.
ERP Software 2020 and Beyond
By the year 2020, the enterprise software landscape will look very different than it does today. The future will see Salesforce and NetSuite continue to grow as their platform ecosystems continue to grow. These players will continue to increase their market share and move more solidly into territory once dominated by what are currently the tier-one ERP software companies—SAP, Oracle, and Microsoft. Some tier-one solutions will still be around, but will exist only to support underlying financials, sales, or manufacturing transactions—much like an old building that is too costly to replace but is gutted and remodelled, leaving only the foundation and walls to remind people of the glories of the past.
The ERP software companies that will forge ahead in this paradigm shift will be those that can offer their products to consumers via the cloud in an easily consumable fashion. The products will be available on an open platform and accessed as services, where the services subscribed to are only what a company needs, not what the ERP vendor has thrust upon a business as a one-size-fits-all behemoth.
Of course, some of the legacy versions will still be operating, but the numbers will continue to decrease. As the baby boomers retire, so will the systems that they installed and grew up with. The new entrepreneurs will have never heard of these solutions and if they saw them, would laugh at them the same way they laugh at a flip phone. ERP as we know it will be long gone, and the solution providers who can build erPLs will be the ones who will dominate the next generation.
*Efrat Nakibly of Priority Software must be given credit for introducing the term “enterprise resource platform.” At a meeting this year, she told us that we should all stop using the term enterprise resource planning and start using enterprise resource platform. We can’t agree more.
Author: Ted Rohm – TEC Blog Post, 2016