Enterprise Resource Planning (ERP) exists to give organisations a single source of master data. The very thing it is there to do has become almost impossible in recent years, due to the amount of technology change. No one knows what the future holds, so what should you, as a CIO, do with your ERP today? How do you ensure you have something that works now and gives you the flexibility to adapt in future?
ERP systems have changed significantly since the days of standard inventory control packages, materials requirements planning (MRP) and manufacturing resource planning (MRP II). They have evolved from a tight focus on managing inventory data to a catch-all term for a mass of systems ranging from back-office (e.g. Finance, HR and Procurement) to customer-facing (e.g. sales and order management) and to niche extensions for industry specific use cases.
While this has been great for the ERP mega-vendors and their sales organisations, for customers it has often resulted in significantly complex application landscapes that are difficult to navigate. Multiple versions, tightly coupled point-to-point integration or heavyweight middleware, heavily customised code, misaligned upgrade trajectories and satellite data stores – all playing their part in breaking a key principle of ERP – to act as a single source of master data. And this then leads to higher maintenance charges vs. the promise of lower Total Cost of Ownership (TCO).
Integrating core systems of record with other applications has also become a nightmare. Customers have bought additional modules from the mega-vendors, bolted on external extensions or added entirely new products to consolidate and report on business-critical information. The complexity of the landscape has resulted in expensive maintenance and support arrangements, and cumbersome upgrade projects. Many organisations have had to dedicate whole departments to the support of their ERP estates. The very thing ERP is meant to do, efficiently integrate information and information based processes, has become at best extremely complicated, and at worst impossible.
“Many organisations have had to dedicate whole departments to the support of their ERP estates.”
Whilst talk of the demise of ERP is premature, cloud and the growth of Software as a Service (SaaS) are paving the way for a new emerging paradigm steadily disrupting the established players. Best-of-breed applications and lightweight integration technologies are heralding a move away from monolithic architectures and heavy complex Service Oriented Architecture (SOA) platforms.
Many organisations are finally unlocking the promised value embedded in their data through deploying focused core solutions integrated with best-of-breed packages. These hybrid architectures look to master business-critical information in a tightly-controlled stable central environment, and then use lightweight integration patterns to link to an array of SaaS applications to deliver additional functionality. Gartner refers to this step change as “Postmodern ERP”. We refer to it as “shrinking the core”. This move is, somewhat ironically, a shift back to what ERP was originally intended to be – a central system of record that provides users with access to business-critical information via efficient processing.
Shrinking the core
These are capabilities which should always reside in the core solution. Applications in this domain are characterised by the need for:
- Centrally controlled master data, i.e. “a single source of truth”
- Tightly integrated processes and workflow
- High levels of integration with other applications
Examples might include management of core employee records, recording of financial transactions and tracking of central inventory data.
These are capabilities which may be part of a traditional ERP footprint, but do not necessarily have to be. Applications in this domain are characterised by:
- Medium complexity – processes are often more modular and less interdependent and subject to more frequent change compared to the Core
- Integration dependencies with the Core master data
- Offered as possible extensions to a Core ERP offer, but also compete with best-of-breed solutions
Examples might include Business Intelligence and Reporting, Sales Order Management and Workforce Management.
These are capabilities which would not typically be considered within the scope of a typical ERP solution. Applications in this domain are characterised by:
- ERP independence
- Specialist functional or technical offers
- Rarely part of a Core ERP vendor offer
Examples might include digital platforms and specific industry applications, such as portfolio management tools or risk and compliance software.
We have found that the trend towards shrinking the ERP core has largely been driven by a desire to focus on establishing a consistent central view of key information, maintaining the integrity of the core data, whilst architecting in the flexibility to swap out future “Core Plus” modules.
To counter the familiar ERP “hydra” scenario, organisations should plan a journey towards shrinking the “Core”, and consider using lightweight integration tools to plug in other “Core Plus” modules or best-of-breed applications – a “Plug and Play” approach facilitated via a clear API (Application Programming Interface) strategy. “Non-core” applications can continue to exist outside this architecture.
No-one knows what technologies may emerge over the next decade, so adopting a position that preserves the ability to change and adapt is likely to be far more appealing than locking yourself in to a single vendor. Staying agile in an environment in constant flux is the rule of thumb in all industries today.