It wouldn’t be far-fetched to call ERP (enterprise resource planning) the brain of an organization’s IT infrastructure. After all, an ERP system streamlines, standardizes, and integrates a wide range of vital business processes across diverse business functions.
Implementing an ERP solution ranks among the most capex-intensive projects any IT leader will undertake. In addition to substantial investments, the solution has the potential to impact all strategic business units of a company. It is, therefore, imperative for a CIO to follow best practices for deploying an ERP solution and then keep a close watch on the trends shaping it going forward.
Here’s a look at how the ERP category is evolving as an enterprise-wide solution and how these trends will impact IT leaders.
Customization gives way to standardization
The traditional practice of enterprise technology leaders customizing an ERP solution to meet their specific enterprise or business needs is giving way to implementing an off-the-shelf solution. A key driver for this is the steep resource cost in keeping customized implementations apace with the latest features — a cost many CIOs forgo in favor of stagnancy, at the risk of falling behind.
“There are regular updates to the ERP, which could be in the form of features and functionalities that are pushed into the live environment. If there is a high level of customization, a CIO will have to tweak the update in context of the customization. This is cumbersome and leads to additional cost. By going in for a standardized ERP solution, IT leaders can avoid these issues, and most are following suit,” says Abhishek Mundra, practice director for enterprise platform services at research firm Everest Group.
Implications for CIOs: Besides avoiding cost and complexity, deploying an off-the-shelf ERP solution also helps in accelerating time to market and making the business agile. “Earlier, because of the customization, the implementation lifecycle used to take anywhere between four to five years. With an out-of-the-box solution, implementation now takes just six months to one year,” Mudra says, adding that IT leaders using off-the-shelf solutions can better spend their time modernizing processes instead.
Best-of-breed solutions overtake the enterprise-wide approach
Earlier CIOs used to deploy an ERP solution and gradually extend it to the various strategic business units across the enterprise. However, rapid digitization and the SaaS revolution are pushing IT decision-makers to adopt a different approach.
“Enterprise technology leaders are aggressively undertaking digital initiatives such as marketing automation, customer experience, social media marketing, and HR transformation,” Mundra says. “However, in these areas, cloud ERP solutions are still behind in terms of functionalities compared to their on-premises versions. So, for a core function such as finance, CIOs go for a cloud ERP solution from a top vendor, which meets their requirements but for other areas, they adopt best-of-breed point solutions.”
Implications for CIOs: In making the most of best-of-breed SaaS solutions, IT leaders must shift their emphasis from implementation to integration. To get the best of both worlds —an ERP for their core functions and myriad targeted solutions for vital line-of-business needs, such as Workday for HR or a Salesforce for CRM — CIOs must undertake process modernization and take on more of an orchestrator role.
Integration takes center stage
With the emergence of next-generation technologies such as IoT, analytics, and AI, enterprises are looking to gain business advantages from them. Taking a cue, leading ERP vendors are aligning with this trend by integrating their solutions with such emerging technologies, and IT leaders are following suit.
“With the availability of web services and JSON, it has become easy to integrate an ERP solution with other satellite applications,” says Achin Sharma, vice president of IT at logistics company Movin India.
Abhay Bapna, CIO at fast-moving consumer goods company Adani Wilmar, agrees: “We have thousands of sensors in our plants and each sensor sends out data every 15 seconds. With ERP moving to the cloud and integrating with technologies such as real-time analytics, huge volumes of data can now be processes on the fly.”
Implications for CIOs: Integration of ERP with other technologies has eased the pains of CIOs to a large extent. For instance, the finance module is a key component of an ERP solution. In the absence of real-time data, at the end of each month, it took a few days to run the numbers and ultimately carry out management reporting. Now with near real-time replication, CIOs can close this month-end activity the very next day, making the entire process seamless and time effective. Similarly, in healthcare, electronic medical records are getting integrated with the ERP solution, providing better insights to healthcare practitioners.
The rise of industry-specific solutions
Given the diverse needs of each vertical, a one-size-fits-all approach is failing to meet the expectations of business and technology leaders. This is giving rise to ERP platforms that offer functionalities catering to specific business verticals.
“Industry ERP solutions are increasingly finding favor among CIOs. There are emerging vendors who have found their niche verticals. For instance, Infor has an ERP solution for the manufacturing vertical; Salesforce offers its ERP for healthcare, banking, and financial services verticals; and ServiceNow is strong in the telecom and public sector space,” says Everest Group’s Mundra.
Implications for CIOs: Industry cloud ERP solutions enable CIOs to get insights into the best practices being followed by their peers. Also, having a broad base of customers offers a better probability of the solution provider investing in product development and innovation.
The move to cloud
Enterprise technology leaders are replacing their legacy, on-premises ERP solutions by switching to the cloud. While the advantages of leveraging cloud were already acknowledged, the pandemic further highlighted its value as it enabled employees to work from anywhere.
“Currently about 60% to 65% of the ERP market in India is still on-premise. This will change over the next three to four years when cloud will surpass on-premise with about 55% to 50% deployments on it. This trend is fast catching up,” says Sheetanshu Upadhyay, research head at global market research firm Strategic Market Research.
Gartner defines the market for cloud ERP as a market for application technology. According to the technological research and consulting firm, within addressable market segments, enterprise IT spending on public cloud will overtake spending on traditional IT in 2025. It predicts that almost two-thirds (65.9%) of spending on application software will be directed toward cloud technologies in 2025, up from 57.7% in 2022.
Implications for CIOs: By taking their ERP solutions to the cloud, CIOs can benefit from lower costs, new functionality, mobility, simpler deployment, elasticity, less need for internal IT resources, and the ability to easily add users and functions to accommodate business growth.