While its roots date as far back as the 1960s, modern-day Enterprise Resource Planning (ERP) as coined by Gartner is forecast to reach US$44 billion by 2022 with the convergence of IoT, cloud and mobility fuelling this growth.
In the report, Turning Intelligence into Value, Accenture says securing and building the capability to take advantage of modern ERP solutions will be a key enterprise challenge. Gartner listed an ERP talent shortage as one challenge. It expects that ERP cloud enterprise application implementation labour rates will increase by 60% due to high demand and a lack of skilled resources.
For his part, Guruprasad Gaonkar, Oracle’s global go-to-market leader, Cloud ERP & Digital Supply Chain, observes that the way businesses view their digital strategy has compressed from the previous one-to-three-year roadmap to solutions that allow them to scale initiatives in a matter of days or weeks.
Changing ERP expectations
“Expectations of what ERP has fundamentally changed.”
He commented that organisations are demanding value when investing for business funding. They want to make rapid transitions, aligning both business changes and customer demand.
There is also greater concern about technology debt, specifically, a ‘solution’ that becomes shelfware or solutions that the company acquired and staff are unwilling to use at work.
Finally, with organisations (and leadership) open to moving to a new operating model and a new cloud culture, “it is becoming more of not why cloud, but a when cloud conversation. And that is a turning point, turning into a trajectory for years to come,” he added.
Asked where cloud ERP is headed, Gaonkar commented that the whole Software-as-a-Service market or the whole cloud market for ERP is heading into two primary dimensions. He describes one dimension as that of connected data.
“Why? 85% of the CEOs claimed internal complexity for their host. And we also spoke about technology debt. And this is one where we believe that the interoperability of ERP function, at least the core area function needs to be on one native cloud that can work for every industry, every line of business application, and every geography that the company operates. So, connected data,” he explained.
The second dimension is on “disconnected data” and somehow this is connected to connected intelligence. The McKinsey report, The State of AI in 2020, noted that an AI-based transformation or technological transformation has an impact of nine to 22% in terms of shareholder returns.
“So what they are saying is that when it comes to connected intelligence, is that, if you have access liquidity in ERP, in your financials, are you better off investing in those investment products, or are you better off doing an early payment discount of suppliers, which is in the procurement system?"
“Now imagine you do this to other places, for example, your financials is a best of breed financial application, and your procurement is a best of breed procurement application. You will not be able to use this connected intelligence for business outcome-based on connected intelligence, and this is what we believe is fundamentally redefining the scope of ERP and the future of ERP,” he added.
The intent of ERP is to transform disconnected data into connected intelligence via the help of AI-integrated SaaS, leading to greater business outcomes and shareholder returns.
Speed vs Tier
Asked for his perspective on the viability of large enterprises using a Tier 1 ERP at headquarters and using Tier 2 ERP solutions at branches (or divisions), Gaonkar commented that organisations using a two-tier ERP concept are “hiding behind the wall where they can’t deliver an enterprise-grade, one-speed ERP.”
A two-tier approach is one where an on-prem ERP system at the corporate level and a cloud-based ERP at the division or branch level. The on-prem solution functions as a system of record (or a single source of truth) while the cloud-based ERP acts as a system of engagement able to react faster to changes at the local or customer-facing level.
He suggests organisations consider a two-speed ERP approach to enable businesses to operate at speeds appropriate to their operations. However, he believed this approach is an intermediate strategy – not an end-state.
Gartner predicts that by 2021, 80% of emerging technologies will have artificial intelligence (AI) as a key component. Referring to this as the fourth-era of ERP, “AI will help organizations to manage and integrate increasingly diverse application portfolios, and then will help support complex decision making through predictive analytics capabilities.”
Gaonkar suggests using AI-native ERP solution versus one built on use cases. “Your (ERP) application needs to be fundamentally built on AI and machine learning, and not a use case-based approach. For the same reasons you cannot convert your existing car to a self-driving Tesla, you cannot convert your existing ERP to a self-driving ERP, as a service,” he elaborated.
CIO advisory on ERP
Gaonkar believes that as organisations move to a more cloud-centric model, CIOs need to weigh the potential of a lift-and-shift ERP strategy to one that is software-as-a-service. He believed cloud offers organisations the opportunity to get rid of their technology debt – to move away from an on-prem CAPEX model and embrace a cloud-native OPEX strategy.
Lift-and-shift will not solve all of the organisation’s problems. “It only solves one part of the line item. As a CIO you need to plan to move to software as a service and then, all those two-speed ERP or two-tiered ERP is a transit part towards that,” he suggested.
He added that CIOs need to think about the future of technology investment in terms of successful outcomes. Finally, “CIOs need to think about how they can lead those business teams or subsidiaries or line of businesses to start from anywhere they want to, without having to worry about the underlying integration complexity, etc.,” concluded Gaonkar.
Click on the PodChat player above to listen to the full dialogue with Gaonkar.
- First-off, Oracle started out as a database company in 1977. Its beginnings in the ERP space was in 1987 with its Oracle E-Business Suite. The rollout of its first Oracle ERP product was in 1988. In 30-seconds, how would you describe Oracle’s ERP business today?
- ERP systems are typically an integration of finance, inventory, sales, and human capital. How different are today’s ERP systems compared to say five years ago?
- Third Consulting Group CEO Eric Kimberling says on-prem systems are much more flexible compared to cloud-based ERP. Is he right with his claim?
- Observing the success of cloud solutions like HCM with Workday or BlackLine with FP&A, Kimberling also says the laser-focused associated with these solutions has worked well in the cloud. Do you see a future for one-size-fits-all ERP solutions gaining full adoption across enterprises in Asia?
- From your discussions with customers, what are the top 3 reasons why they want to move to the cloud? What are the top 3 reasons why they are preferring to keep their on-prem system in place?
- We’ve started to hear of enterprises adopting a two-tier system for ERP implementation. A two-tier system allows firms to retain their investments in existing ERP software at the corporate level (tier 1), while the subsidiaries and smaller business units run on a cloud-based specialized ERP software (tier 2). The two tiers will ideally be integrated to allow seamless data exchange and allow flexibility to respond quickly to market signals. Is this something that you are seeing in Asia? Why or why not? (2 speed ERP?)
- Among the many emerging technologies of, interest by CIOs and CFOs is AI. What is your take on AI and how do you see this technology being added-on or integrated into ERP systems?
- Some suggest that during the pandemic ERP projects will take a back seat to more tactical projects that solve specific needs. What is your view on this?
- Finally, what should CIOs and members of the C-suite remember when deciphering the future of ERP in their organisation?