04 January 2010

The New ERP – Part 36

In December 2009, Eric Kimberling, founder and president of Panorama Consulting Group (Denver, CO), offered his "ERP Software Predictions for 2010". They are as follows (with my comments added:

  1. Diligent focus on ERP software benefits realization and ROI. Long gone are the days of spending like it's 1999 and hoping for the best. CIOs and COOs will continue to face pressure to prove that every dime of investment in ERP systems is justified and generates a solid return on investment. Look for more deliberate spending, more phased rollouts, buying licenses only as they're needed, and hesitancy to invest in more expensive advanced enterprise software modules.

    Isn't this what The New ERP – Extended Readiness for Profit is all about? We have emphasized the ROI should be a deliberate forethought for you and your management team over and over. We have repeatedly pointed out that spending money on technology – or anything else – based on some "hope" that your organization will improve is pure folly. "Hope" is not a strategy; it's a small town in Pennsylvania, I believe.

  2. SMBs to get back into the ERP software market. The bright spot in any recovering economy is usually small business (SMBs). As the economy emerges from the recession, SMBs will look for small business software to automate their operations and scale for growth. In addition, large software vendors such as SAP and Oracle will continue to focus on the SMB market to reinvigorate their revenue growth in software license sales. [Emphasis added.]

    "Growth" ought to be the focus of every business organization. This is also the focus of The New ERP. While cost-cutting is the knee-jerk reaction to trying economic times, there is a limit to the gains that can be made through cost-cutting. I have frequently put this challenge before individuals and groups of businesspeople and have yet to receive a correct response: "Name for me one business enterprise that has become a market leader where its primary business strategy was 'cost-cutting.'" Growth is the only strategy that has no limitations to improvement.

  3. Increased adoption of Software as a Service (SaaS) at SMBs. While SMBs may lead the charge in their small business software investments, it may be difficult for them to make the necessary investments. Given that tight credit markets will likely continue into the new decade, many SMBs will look to SaaS ERP software to help them minimize up front capital IT costs. [Emphasis added.]

    Here again we see that this approach falls directly in line with The New ERP – Extended Readiness for Profit. Minimizing up-front capital IT costs means nothing less that holding what we have called delta-I (the change in Investment) as low as possible while driving to maximize delta-T (the change in Throughput). Once again, the strategy we are suggesting is right on the money – literally.

  4. Lots of ERP SaaS talk, but not as much action at large organizations. Larger companies, on the other hand, are likely to consider SaaS options, but are much less likely than their SMB counterparts to commit to these deployment models. As software vendors expand hybrid solutions combining the benefits of SaaS with the flexibility of traditional ERP (e.g. Oracle's On Demand and SAP's Business By Design offerings), larger organizations will continue opting for non-SaaS options that more commonly reduce cost and risk while maximizing business benefits in the long-term. They will, however, be more inclined to leverage SaaS for some niche functions, such as Document Management Systems (DMS), Human Resource Management Software (HRM/HCM), Product Lifecycle Management (PLM), and Customer Relationship Management (CRM). [Emphasis added.]

    In this case, I think Mr. Kimberling misses the mark. While his analysis is likely correct as to the reactions of "large organizations" versus "SMB" firms to SaaS offerings, Kimberling is off-base when he makes reference to "the flexibility of traditional ERP." In fact, if "traditional ERP" has fallen into disfavor for any reason in the last decade, it is the sheer weight of evidence that "traditional ERP" is far too rigid that has led to it.

    On the other hand,
    The New ERP's approach to solution design and decision-making is all about taking "traditional ERP," with its inherent rigidity, and finding economically sensible ways to extend its capabilities at low-cost and without (or minimizing) changes to source code.

  5. Increasing focus on organizational change management and ERP benefits realization. As demonstrated by the exponential growth in Panorama's organizational change management practice, companies are directing much of their ERP software investments to areas that ensure they implement effectively and get more out of their existing enterprise investments. The need to more effectively manage organizational and business risk will likely result in a continuation of this trend in 2010. [Emphasis added.]

    Bang! The New ERP hits the target again. Imagine the novel idea that companies should "direct much of their… investments to areas that ensure they implement effectively and get more out of their existing enterprise investments." That sounds very much like what we have been trying to hammer home with The New ERP – Extended Readiness for Profit.

  6. With ERP software, it's still a buyers' market. Even in the most optimistic scenario, overall 2010 enterprise software spending will not return to pre-recession levels. This means ERP software buyers will remain in the driver's seat, which will be reflected in aggressive software pricing and shared benefits implementation models, such as that introduced by Epicor late this year. [Emphasis added.]

    Mr. Kimberling's statements here suggest – and rightly so – that, in some prior years, the "ERP software buyers" were not "in the driver's seat." If you have read the prior posts in The New ERP – Extended Readiness for Profit, then you will understand when I ask this question: "Why, for goodness sake, has the ERP software buyer not always held his ground and stood fast 'in the driver's seat'?" The New ERP is all about assuring that you and your management team are, and remain firmly ensconced, in the driver's seat.

  7. Enterprise software risk management. As CIOs and executive teams remain on the hot seat to prove the value of their investments, risk management will be the name of the game. Look for more ERP implementations to leverage organizational change management and independent oversight of software vendors to help mitigate business risk. [Emphasis added.]

    A survey of the literature surrounding the ERP software industry makes it all too plain that, heretofore, most CIOs and executive teams were not held to metrics that would clearly "prove the value of their investments." In fact, far too many CIOs today still make excuses about how the "benefits" of investments in IT cannot be measured.

    However, as
    The New ERP boldly asserts, if the organization cannot figure out how – and approximate how much – a recommended change in information technologies will lead to increasing Throughput, reducing Inventories or demand for new Investment, and/or cutting or holding the line on Operating Expenses, then maybe – just maybe – the IT change just isn't worth making.

  8. ERP software vendor consolidation. Vendor competition was fierce before the recession and is even more so now. Dozens of smaller vendors are starved for cash and unable to fuel R&D and other product innovations without infusions of capital. Add the fact that larger vendors have cash and some have grown successfully via acquisition to date (e.g. Oracle and Infor), and continued vendor consolidation looks inevitable.

    In my opinion, vendor consolidation is neither good nor bad from the perspective you and your management team. If you are applying the concepts set forth in The New ERP – Extended Readiness for Profit you come out a winner no matter who supplies the desired technologies.

  9. Focus on integration rather than major ERP package enhancements. Given corporate aversion to risk, companies are going to be less likely to bet on entirely new products or risky upgrades. As a result, vendors are more likely to invest in incremental product enhancements and tighter integration between modules rather than revolutionary changes to their software. [Emphasis added.]

    Once again The New ERP falls right in line with Mr. Kimberling's analysis. Why should an organization undertake a "risky upgrade" or "bet on entirely new [software] products" – traditional ERP (Everything Replacement Project) – when following the guidelines in The New ERP will bring them near-immediate benefits through increased Throughput and/or reductions in Investment demands and Operating Expenses?

  10. Niches, low-hanging fruit, and business value.
    Look for companies to be very deliberate about how they invest in enterprise software, the risk they're willing to take, and how they manage implementations. If executives aren't convinced that their enterprise software investments will deliver measurable business value, they won't invest in it. Areas that deliver immediate value are priorities for the coming year." (Kimberling 2009) [Emphasis added.]

    Now this one sounds so good, I almost could have written it myself! What a strange thing it is that it took nearly 30 years from the coining of the term "ERP" to reach the point where companies have become "very deliberate about how they invest in enterprise software" and business executives "won't invest" unless they're "convinced that their… investments will deliver measurable business value." That is far too much wasted time, energy and money. Don't you think so, too?

Works Cited

Kimberling, Eric. Top Ten ERP Software Predictions for 2010. December 7, 2009. http://panorama-consulting.com/top-ten-erp-software-predictions-for-2010/ (accessed December 21, 2009).

©2009, 2010 Richard D. Cushing


Gain ERP said...

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RDCushing said...

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