The value of enterprise resource planning (ERP) in business transformation and competitiveness has faded into the background as trends such as cloud computing increasingly gain traction, according to the leader of the Leading Edge Forum (LEF).
However, that hasn’t stopped many large organisations from forking out billions of dollars on establishing and maintaining their ERP environments, the research firm’s region director, Warren Burns, said. LEF is a global research and thought leadership community affiliated with CSC.
“The pricing model is out of whack; the amount of money expected from companies for licensing ERP software no longer represents the value it used to,” Burns claimed. “There are multiple projects over $1 billion and that’s incredible to me. Where do you draw the line and say ‘I can make this for $1 billion?’
“I don’ think ERP is going to go away... but it’s not something that’s worth investing extensively in. It’s just something that is an assumed cost of doing business that you should try to commoditise as heavily as you possibly can.”
There has been some competition, supplier consolidation and ERP as-a-service offerings, but prices haven’t fallen, Burns said. Also, while smaller businesses are taking up open source alternatives to big providers of ERP such as Oracle and SAP, these have not yet been a popular alternative with larger businesses.
CFOs need to sit down with their CIOs or IT leaders and have frank conversations about whether they need all the ‘bells and whistles’ in an ERP system, Burns said. With the CIO’s desire to get out of the back office and in with the business, the CFO needs to work with them in making decisions together about what realistically is needed and what is not.
“Make this just the plumbing,” Burns advised. “No one is going to buy a house because it has nice plumbing, so we need to think of ERP as plumbing. It doesn’t have to be fancy, it doesn’t have to be custom and it doesn’t have to be gold plated. It just needs to operating in the background and taking care of all those transactional things we need it to do.
“Look at the value you are getting out of lots of the expensive add-ons ERP vendors will try and licence. Often they try to group largely useless, or certainly massively overpriced components, of their software in order to make you feel like you are getting a whole-of-business solution. But when you look at what some of these components do, if you were to think about buying that standalone there’s no way you would pay that [amount] for the implementation.”
Burns also pointed out every dollar spent on an ERP licence represents more than $100 in software installation. “Every piece that you licence is going to be very, very expensive to install and implement.”
Alongside technology, CFOs and CIOs need to better collaborate when it comes to the skills sets and staff required to run complex ERP systems.
“Individuals spend entire careers implementing ERP systems, but often only have deep expertise in a handful of modules of which there are many dozens,” Burns claimed. “Recruitment firms looking for ERP talent spout a raft of acronyms that make little sense to anyone outside the industry.”
He gave an example where a job advertisement on an Australian website said it was “looking for a dynamic leader with FI/CO, BI, SD, XI and MDM experience to start immediately”.
“The fact that it is unlikely that any single person would actually have the above combination of skills shows even the ERP industry itself is struggling with its jargon,” Burns said.
Burns is currently involved in a global research project by the LEF that looks at the future of ERP and the possible paths forward in dealing with some of its challenges. The LEF plans to publish the research in October this year, and is looking for participants.