BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

ERP Isn't Going Anywhere

This article is more than 10 years old.

Guest post written by Kevin Parker

Kevin Parker is CEO of Deltek, and former CFO and Co-President of PeopleSoft.

I was struck by an interesting article published here a couple of weeks ago by Tien Tzuo of Zuora titled "The End of ERP." While I agree with some points, I strongly disagree that enterprise resource planning (ERP) software is dying.

Yes, traditional/generic ERP with its heavy requirement for customization and consultants is going the way of the mainframe computer, but purpose-built ERP that meets the specific business requirements of a particular industry will be more important than ever in the coming years. This is especially true with the shift to a more services-based, knowledge economy, where connecting information across the enterprise with people’s brainpower is becoming more important than physical assets.

Given today’s increasingly flat and hyper-competitive world, there is a growing need for big data that can be rapidly analyzed and turned into actionable information to make smart decisions, and an acute need for ERP vendors to provide this decision-making data, offer flexible applications built to enhance the processes of specific industries, and to do it in flexible way that meets customer needs. Now’s the time for purpose-built ERP, delivered anywhere at any time and on any device, to rise to the top.

A “subscription economy,” described by Tzou as the shift away from owning tangible goods towards becoming consumers of services that provide us with experiences, is nothing new in the world of ERP, or any other software industry for that matter. It is definitely happening – more of our business is moving to subscriptions, as it is for many other providers.  However, let’s not equate the term subscription with the term commodity. ERP software can and should be consumed any way a customer wants it – on-premise, in a hosted model, through the cloud, through a subscription – but this does not change the fundamental value of the software itself - especially when that software is not generic, and is purpose-built for the unique needs of a specific industry.

This shift towards pay-as-you-go ERP actually works to the users benefit, as it delivers more end user flexibility and forces vendors to keep up their side of the agreement or risk losing a recurring customer. In a way, many ERP vendors are actually ahead of the curve when it comes to a subscription economy, having already transitioned to a cloud-based delivery model.

To prove that purpose-built ERP is not dead, let’s look at an example of a purpose-built ERP system – one built to meet the needs of project-based industries. In addition to this shift towards a subscription economy, the United States is moving towards a knowledge-based economy, an economy built not on assets and products, but on intellectual property and people’s brainpower. While manufacturing used to be the backbone of the American economy, its dominance has diminished over time. The industries that are flourishing in the U.S. are those that rely on intellectual property, like consulting firms, marketing agencies and government contractors – and these companies don’t necessarily make physical goods. These knowledge-based companies tend to operate with huge inefficiencies because they have grown rapidly but have not invested in technologies that can automate their businesses.

One of the most promising areas for ERP is better serving the new economy within the U.S. – an economy based around delivering services in the form of projects or engagements for end customers. And I’ll agree with Tzou that generic ERP has no place here.

While Oracle, SAP and NetSuite continue to sell their software, they’re simply not built from the ground up to support sophisticated project-based industries – those industries that are classic outgrowths of the rising knowledge-economy.

Generic ERP applications that require businesses to conform their unique process to the way the generic ERP system wants them to work or require expensive customization are no longer practical. With companies of all sizes looking to improve operating efficiency, companies need to have an ERP system that is based on industry-specific best practices, rather than a system built to one specific standard that all must adhere to. This is particularly true for project-based businesses that need to view and manage in-depth information on individual projects. While I agree that traditional ERP was built to “track products that can be put on a pallet,” purpose-built ERP systems like those built for project-based industries can track the status of every individual project, and all the transactions associated with that project (sub-tasks, resources, billable hours, invoices) something generic applications just can’t do.

As Tzou notes in his article, “ERP is simply not built around customer-centric transactions.” This may be true for generic ERP, but project-based ERP systems are 100% built around the customer. They feature full integration between the front and the back office – so when you bid on and win a project, it immediately creates a project record that future transactions involving that project are connected to. This gives the company getting paid to deliver the project a real-time view into project budget and status which means it can make adjustments before the project goes off track. This of course ultimately helps the end customer who commissioned the project in the first place.  This is just one example of how a purpose-built ERP system (one built for projects) can be a game-changer today – if it is applied to the right industries to solve the right problems.

In addition to offering strong software, it is just as important for modern ERP providers to focus on providing great services that complement and round out what the software does. This has to go beyond software implementation – increasingly we see buyers looking for vendors that have deep industry knowledge around industry trends and best practices. The most viable ERP providers will be those that become true “problem solvers” for their customers, especially when the problems solved revolve around the mission-critical processes that drive those customers businesses. When you combine great software delivered as a service and paid for as a subscription, with value-added services like those described above, you have a truly valuable offering that companies are willing to pay for.

As a final point to demonstrate why ERP is not dead, big data (a buzzword we’ll all get tired of hearing soon) is more important than ever. These days, it’s all about how much good information you have, how fast you can get it, and how best you can apply it.  Again, purpose-built ERP can mine, connect and aggregate information allowing companies to have their finger on the pulse of their company and change on a dime.

While I do agree with some points that Tzou made – particularly that big (read: generic) ERP is not customer-centric and was traditionally built to track items on a pallet – purpose-built ERP is thriving. It is thriving because it’s built for an industry’s specific business processes, like the project-based ERP examples I described above.

I’d like to end with this final example:  During my time at PeopleSoft, using our own software I wasn’t able to understand the profitability of the projects that we were running in our billion-dollar services group. Now, thousands of companies around the world use purpose-built ERP today to win, deliver and manage complex projects. And, these project-based companies are at the center of the growing knowledge economy.

See, ERP is not dead. It just needed to evolve.