How ERP Software is Changing

The traditional role of Enterprise Resource Planning systems (ERPs) is evolving along with the rapid progression of cloud computing, artificial intelligence (AI), automation, and other digital technologies. Cloud delivery models, in particular, are changing the core value proposition of ERP solutions from an emphasis on customization of the environment to speed of deployment, agility, and the ability to easily scale as needs change.

Here, briefly, are four ways the value proposition of ERP is evolving, driven by these technological and market forces:

  • The shift from capex to opex. The ability of organizations to access ERP software in the cloud [i.e., subscribe to a Software-as-a-Service (SaaS) offering] rather than purchasing and loading software onto dedicated in-house servers has resulted in a huge shift in the way people license software. From an accounting perspective, enterprises are essentially taking software licenses off the balance sheet and putting them on their P&L, shifting software from a capital expenditure that depreciates over its lifetime to a subscription-based, operational expenditure.
  • A growing preference for agility over customization. Companies are demonstrating a willingness to forego customization in order to enjoy the quick onboarding of a SaaS offering. One of the most compelling aspects of this shift in thinking is that organizations are questioning the necessity for some of their ERP system customizations. Specifically, they’re taking a closer look at their business processes and opting to use the shift to a new platform as an opportunity to improve them. This means that organizations are essentially adopting processes to fit the software, rather than customizing the software to fit their processes. Agility—translated as drastically reduced time to implementation or time to market—has great financial appeal, especially when a company can be up and running in a few months with a brand-new SaaS offering versus a year or more with a traditional, perpetually licensed, on-premises ERP that has to be customized.The ease of scaling SaaS ERP solutions is also attractive: “I want to bring on five users now, then next month I want to bring on another 10. And I just want to pay my monthly rental fee and be done with it.”
  • Expanding both how and where people can work. Today’s employees need continuous access to real-time data regardless of their location, and they expect their company to provide maximum flexibility for interacting with customers, other employees, and vendors. In the case of accounting operations, for example, “continuous accounting” is becoming the expectation. In continuous accounting, the team is not really driving toward the month-end close or the weekly sales numbers as was common in the past. Rather, the team is working in a real-time, interactive environment made possible by cloud computing and mobile technologies. For example, employees on the road can approve purchase orders with the mobile app on their phone, rather than having to wait until the end of the day or a return to headquarters to reconnect to the “Mother Ship.”
  • Transforming business processes with automation and AI.  Automation and AI will be the real game changers going forward. One way we already see this in action is in the ability of an ERP solution to predict what kind of business form a scanned piece of paper is—whether it’s an invoice, a job application or a tax form, for example. As ERP solutions advance in their capacities to automate mundane, repetitive tasks and apply the predictive capabilities of AI to business processes, the value proposition of ERP will be magnified.

I believe that cloud-based delivery models imbued with automation and AI will soon be the predominant approach taken by the majority of enterprises and those solutions are certainly worthy of your consideration. That said, there are a few caveats and tips to keep in mind as you evaluate your options.

  • First, SaaS won’t completely replace in-house or on-premises applications. For some organizations, there will still be compelling reasons—such as security concerns or some sort of competitive advantage the in-house system provides—to continue to use legacy systems or components. Hybrid approaches will be common, and the task of integrating cloud-based, plug-and-play SaaS systems with on-premises solutions will provide a whole new challenge.
  • And even though agility is growing as a core ERP value proposition, customizations are not out the window completely. Organizations have to strike a balance between the time to implementation and requirements or best fit, and vendors similarly must strike a balance in offering enough customization to meet a diversity of use cases while not going so far as to compromise the agility benefit.
  • Additionally, more choices does yield more complexity. Users now have numerous choices to consider. Enterprises must not only consider where their software is deployed (on premises or in the cloud) but also how they purchase it (subscription versus perpetual license).
  • There’s an old saying you’ve probably heard: “Don’t go grocery shopping when you’re hungry.” That applies metaphorically to ERP migration, too. Know your business requirements before you go shopping for vendors. As you are evaluating them, first make sure your requirements are met, and then consider the delivery mechanism or vendor, rather than the other way around. In fact, when ZCom Solutions serves as an independent adviser in selection processes, we often conduct a “blind review,” keeping the identities of the vendors hidden to prevent bias or preconceived ideas from influencing the decision process.
  • Finally, take time to vet the village, not just the vendor. Most end-to-end solutions require multiple partners. The company that you buy the software from will likely not be the same partner that does the implementation, and the implementing partner may not be the same partner that hosts the application. 

Now that we’ve addressed the ways ERP is changing, it is important to note one very important way that ERP is NOT changing: 

You still must pay attention to the change management component of ERP implementation. 

As you evaluate ERP solutions such as the “modern,” cloud-based options described above, place a high value on your vendor’s “soft skills” and end user adoption rate. Otherwise, you could go through the entire selection and implementation exercise, spending millions of dollars and years of your company’s focus, and end up with a system that end users don’t really want to use. The change management component of an ERP implementation is mission critical: it is as important in the selection criteria as the system and the features themselves. 

Authored by DeAnn Zufall

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