ERP solutions need a hybrid approach

Although enterprise resource planning (ERP) is here to stay, the old-school approach of having core systems sold by just a handful of vendors is being disrupted by a proliferation of new vendors offering specialised cloud or internet-based solutions.

However, cloud is currently overhyped. Although it’s becoming more broadly adopted for business IT needs, only select applications are best suited to it. Many companies are finding themselves in a middle ground — where there’s an acceptance that traditional means of application management form a powerful, unmatched foundation, but where new methods offer genuine innovation in areas such as customer engagement, mobile, social and digital.

Therefore, the reality for medium and large organisations is a hybrid application landscape.

What does that mean? Looking back, the thinking in Australia 15 years ago was to start with an ERP package from one of the big vendors. Such a solution would require a small army of consultants, with customers throwing bags of money at it, to end up with business process automation customised to your business.

Then evolved an application strategy loosely described as the ‘one-stop shop’. For example, an enterprise might choose to go with a big vendor and then bias the selection of complimentary applications (eg, CRM or business intelligence) to be from the same vendor — the theory being that such an approach would be easier to manage.

That, however, is the thinking of the past. Over the last decade or so, organisations have begun to realise that there are cheaper, quicker and nimbler solutions sitting outside of this ‘single vendor’ model — a hybrid scenario of a core ERP application with satellite applications sitting around that core. The core ERP remains a critical foundation but it is not strategic.

Innovative satellite applications continue to proliferate. ERP vendors have even jumped on the bandwagon, offering standalone applications (typically via a cloud model) or buying companies that do. This approach will continue, but the core elements are likely to remain exactly where they are now due to a lack of compelling or viable alternatives.

There are some new realities that come with hybrid adoption. Firstly, organisations themselves need to be good at integrating core, on-premise ERP with innovative cloud applications. Back in the old days a one-stop shop was the key to avoiding integration issues, but with hybrid an enterprise can’t avoid having to deal with integration. Fortunately, new tools are available to ease the development and management of this vital connectivity.

And secondly, organisations need to be very canny about reducing the cost of ownership of core systems that are in play, thereby freeing up funds and resources that will allow them to innovate in more strategic areas of the business.

According to Gartner, up to 87% of current operational expense in major enterprises is simply devoted to ‘keeping the lights on’ in core systems, and a significant chunk of that goes to high-cost, low-value annual maintenance fees. This doesn’t leave much extra cash for innovation.

By reducing the maintenance bill, much more of the IT budget is freed up for innovation today and for investment in growth.

As the market matures and organisations become increasingly more sophisticated about their IT investments, we are seeing a major shift away from one-stop shops to a hybrid model incorporating flexible, cost-effective alternatives.