The End of the ERP?

How technology change is redefining the role of ERP applications

Computer Weekly states that most SAP projects have a 50 percent chance of failure. Resulting IT, an SAP advisory service, surveyed 105 SAP project owners to find that 52 percent were over budget. Few people who’ve worked on ERP implementations would be surprised by these statistics. Why is it then that one of the world’s most popular enterprise resource planning applications so frequently fails to meet the needs of today’s leading organizations?

It can’t be maturity. SAP ERP is based upon 1992 R/3 technology, and Oracle’s ERP, EBS, was first released in 2001. It can’t be lack of expertise. ERP developers can be found in every corner of the globe. Perhaps then, it is the very nature of the ERPs themselves. Perhaps the logical design at the heart of ERPs simply isn’t well suited to meet the rapidly changing demands of what businesses now require in their rapidly changing markets—and try as they might, organizations cannot force them to.

In many organizations, enterprise-level application selection is still highly influenced by IT. For IT leaders mega-vendors such as SAP and Oracle are the logical choice. If nothing else, they are the safe choice—few CIOs and CTOs get fired for designing their enterprise architecture around a market leader. But business leaders who fail to meet revenue and profitability goals often do get fired, and pointing at multiyear ERP projects as the problem will rarely save them. The choice then becomes a question of who should be selecting the enterprise technology most responsible for driving organizational performance—IT or the business? It is the classic “stack-shop” versus best-of-breed battle taking place on the rapidly changing landscape businesses are now forced to compete upon.


Every new technology creates a leap forward in capabilities. But it also triggers more subtle shifts in attitudes on traditional topics. As what was once thought of as progressive becomes mainstream, it shifts the power away from IT experts and often creates conflict between IT and the business, where senior leadership is often vying for political power. This is especially true right now on the topic of who should lead technology changes that directly drive business performance:

  • Cloudy with a chance of change. It is easy to focus on the obvious benefits of the cloud: high availability and scalability, built in back-up and redundancy, and the simplification of internal architecture. But the hidden benefit of putting enterprise applications in the cloud is the simplification of IT staffing. In-house IT experts who understand how each application uses infrastructure are no longer needed. While this is beneficial to the overall organization, it leaves IT with an unclear role. IT experts now add more value as advisors, allowing the business to make application choices based upon functional needs. Business leaders have been happy to take this responsibility on, since it has such a significant impact upon their success. This has opened the door to an in-depth analysis of how each application meets the organization’s current and future needs. Cloud has taken away the advantage mega-vendors once had, leveling the playing field for many applications—if those applications can all easily work together the same way broad ERPs do.
  • Integration. Choosing best-of-breed applications has always had one major drawback: integration. In the past, IT could always rely upon the complexities, and cost, of integration to scare the business into agreement. But today people are used to seeing their social profile, phone contacts, and personal data shared seamlessly across a wide variety of often very different online applications (even if they would rather it wasn’t). They see the same flow of data between business platforms, applications, and websites. Integration has become a natural part of life and a competitive necessity, and it too is also piggybacking off of the move toward the cloud. Microsoft Azure, Amazon, and even Google are locked in an application arms race that makes more standard connectors and cloud middleware available every month. Smart software vendors are taking advantage of this, and with the integration concern mitigated, the conversation more squarely focuses on what application will bring greater value.
  • A focus on value. Value was once an intangible term, and perhaps for start-ups in emerging technology industries it still is, but for the majority of companies in mature industries, value now directly equates to revenue. This is forcing companies to look at the ERP versus best-of-breed decision through a new lens where IT is a cost center whose primary responsibility is to help the business chart a road map toward ever-increasingly greater profitability and differentiation. For the business, it is a matter of giving its personnel the tools that will allow them to most effectively drive revenue, reduce expense, and improve the customer experience. This was the original intent of ERPs: planning to use the enterprise resources in the most effective way possible. But the very nature of best-of-breed technology makes it more effective at doing this than broad ERPs, and as a result, the business is naturally drawn toward this technology. To those on the frontline trying to differentiate themselves day in and day out, ERPs have become back office automation. And an efficient back office might reduce expense, but it rarely adds value in the eyes of ever more demanding customers.
  • Differentiation. Functionally oriented enterprise-level best-of-breed solutions will always offer deeper and more robust operational functionality. That is the value proposition they are based upon. But business leaders also have limited resources and have been conditioned to know that each new application—on-premises or in the cloud—adds expense. The mega-vendor reputation for failure and project overruns has eroded the perceived advantage of simplification that they have traditionally had, but it is still a question of what is necessary for an operation to effectively compete, not what they would ideally want. This means that the more forward thinking the business leadership, the more likely they are to lean toward applications designed by best-of-breed vendors who have the expertise to understand the nuances of their industry—not a strength of ERP applications that seek to appeal to the masses across all industries.


Given a choice, every business would pick a combination of best-of-breed applications to run their business—and perhaps that is what the enterprise architecture of the future will look like. But for now, most IT organizations will fight this inevitability with all of their political muscles.

Inevitably, the decision will come down to a strategic choice. Those companies that chose a more progressive, customer-oriented strategy will be forced to adopt a best-of-breed approach. Those companies that seek to lead in highly competitive markets will also lean in the same direction. This will give them the best chance of moving beyond traditional business models, staying ahead of the competition and differentiating their products and services. But many companies and industries still rely primarily upon price, or upon the pure strength of their products, to compete. These will be able to remain more wedded to traditional ERP applications, at least until someone in their industry turns the table on them.

Regardless of the path down which an organization travels, IT will always play an important role in the selection of enterprise architecture. Only they can vet application design and architecture, and assess the stability and scalability of on-premises or cloud infrastructures. The business does trust that IT will help it effectively manage risk, even if it may find its IT leadership a bit too conservative to help it achieve revenue goals that are rarely conservative. IT leaders might feel slighted, or prone to let the business go it on its own if it really wants to make IT decisions, but this too is changing in the world’s best companies. They understand that to succeed in an era where technology is advancing faster than any other area of business, IT leaders who understand their business and can give good advice and guidance might just decide not only who succeeds, but who survives. A&G

About David Giannetto 1 Article
David F. Giannetto is the author of two books on how enterprise-level technology drives business performance, including his latest Big Social Mobile (Palgrave Macmillan). He is the COO of Astea International and has been named a business thought leader by the American Management Association, Business Finance Magazine, and Consumer Goods Technology Magazine.