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Will Disruptive Cloud Computing Kill Enterprise Resource Planning?

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It’s a just about a cliché at this stage to note that cloud computing has been one of the big technology disruptors in recent years. However, according to Gartner, the best — or worst, depending on your perspective — has yet to come. It seems Enterprise Resource Planning (ERP) applications are doomed to legacy status or even the trash bin.

ERP Legacy Systems

According to a recently published report. Predicts 2014: The Rise of the Postmodern ERP and Enterprise Applications World (fee charged), monolithic ERP implementations will start to disappear by 2016, especially as alternatives mature. Gartner describes a legacy system as any system that is not sufficiently flexible to meet changing business needs. This in itself is an interesting definition because it could be applied to many other applications that have failed to evolve in an agile and flexible way to respond to market pressures.

However, in this report Garter focuses on ERP applications only. It reports that as ERP alternatives develop, CIOs and applications leaders will need to act before the reality of ERP in the cloud catches up with them.

"The need for agility and responsiveness has led highly customized ERP implementations to an impasse, creating a subset of legacy ERP installations that must be dealt with constructively," said Andy Kyte, Gartner vice president and co-author of the report.

He also said those enterprises that thought they were getting ahead of the pack in the early days are facing challenges, explaining:

Early ERP adopters, particularly large enterprises in energy, manufacturing and distribution industries, are paying the penalty of a decade or more of excessive customization. Businesses looking to improve administration today can take advantage of lower costs, better functional fit and process flexibility offered by blending cloud applications with on-premises applications in what we now refer to as 'postmodern ERP."

Historic Problems

According to the report the problems that are impacting on ERP are historic. In fact, they go back nearly 20 years. From the mid-1990s, enterprises invested in ERP solutions because they addressed problems that had been inherited from the 1980s, when systems were not reliable enough and did not integrate with newer applications.

To deal with these problems, enterprises invested in ERP solutions at the same time they were also re-inventing in their business processes. There were three groups benefitted from the development and implementation of ERP systems:

  1. Enterprises, because those that implemented these systems were able to implement changes in processes, too
  2. Independent Software Vendors (ISVs) who made huge amounts of money before disappearing
  3. Major consultancies that managed the business processes and implemented the solutions, securing large continuous contracts in the process

However, many of these service provides went beyond implementations. They provided extensive customizations on top of the work that was outlined on the licenses, with many setting up software factories with thousands of programmers to provide those customizations.

As a result, Gartner noted, enterprises have spent 10 times more on customizations than they did on the original product in the first place, on top of the huge service fees to keep those customized applications in order.

The net result of 15 years of continuous customization, the report added, are ERP implementations that are now "arthritic," incredibly slow and expensive to change.

They are also expensive to operate and error-prone.

ERP Systems Today

The wheel is turning again and the ‘postmodern’ ERP systems that Kyte is talking about are likely to change the landscape again.

The ERP suites are being “deconstructed” into a loosely federated group of modules in an ERP environment with many of those modules being accessed as cloud services.

There is also the economic considerations that rise of cloud computing throws into play, particularly in light of the costs around traditional ERP systems.

Business stakeholders still want these same qualities, but now they assume that these qualities will be present in any software solution, and their requirements have switched to the twin concerns of lowering IT costs and seeking increased flexibility. A system that is not sufficiently flexible to meet changing business demands is an anchor, not a sail, holding the business back, not driving it forward."

 

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