Is Digital Transformation the End for ERP?

digital-transformation

For many years, ERP has been the glue that has connected business processes within a company and supported business process extension to external users. In recent years, ERP’s hegemony as the “system-to-bind-them-all” has come under pressure and digital transformation seems to be accelerating this change.

Since there is no formal definition of digital transformation, for the purpose of this blog post, I would like to define digital transformation as:

  1. Pervasive use of technology across business processes.
  2. Use of technology to connect external users directly to the company’s business processes.
  3. Implementation of business and operating models based on the use of technology.
  4. Leveraging technologies that go beyond simple process optimisation such as predictive analytics, APIs, machine learning etc.

For many companies, digital transformation may mean implementation of some of the above, but not all. However, it is unlikely that a business should not do any of these is some form.

ERP as the Pervasive Technology

As long as I can remember, people have argued that efficiencies were found by implementing all business processes in a single, integrated software solution, namely ERP. Maybe this was true before cloud and the democratisation of integration technologies, but nowadays connecting Salesforce CRM to your ERP system is hardly rocket science nor does it take months – merely days or weeks. Also, people are increasingly weighing up the advantages of fully integrated processes with the need for speed and agility. Going into the era of digital transformation, I think we need to look at ERP as a landscape of connected business applications rather than a monolithic one-stop-shop. This is likely to challenge both IT departments and application management outsourcers because instead of focusing core skills on a single solution, they now need to understand and support multiple solutions – or leave it to “digital citizens” in the business to pick up this role. Certainly, digital transformation is likely to mean change in the way IT and outsources relate to business stakeholders.

Connecting External Stakeholders

Until now, ERP has predominantly been about supporting and optimising internal processes. Anything to do with external users has been handled on an arm’s-length principle through portals or similar technologies. This is not going to work in future. To become fully digital we need to connect all users through relevant technologies, apps, that are similar to what they use is other aspects of their digital life – or they will take their business elsewhere.  ERP people have traditionally not understood or appreciated the need to leverage apps and SoMe as part of the business processes so here we are facing a major hurdle if we are to stay relevant in the digital transformation. Actually, the technology is there. What we need now is consultants and service providers, who can deliver on the opportunities.

New Business Models

Transforming ERP is always difficult and filled with risk. Therefore, the ERP area is inherently conservative. We have traditionally been very good at optimising existing process, or on a good day, suggest a new process, but expecting the ERP community to invent and drive through new business models may be “a bridge too far”. However, as new business models are being trialled and matured, ERP needs to become more responsive to earn a place in the future digital reality – or run the risk of becoming obsolete.

Leveraging New Technologies

It is fair to say that ERP vendors are currently doing their level-best to promote new technologies such as machine learning as complimentary to their ERP package, but so far it seems more tentative than pervasive. However, I believe that this is where the biggest opportunity lies for ERP in the digital era. If, for example,  we can leverage machine learning to truly optimise internal business processes such as AP automation, maybe ERP as we know it, still have a future, but it will require a new set of thinking for ISVs. I am pretty sure that the ERP vendors will offer these technologies as-a-platform, but leave the actual implementation to ISVs and VARs. In many ways this is an understandable approach, but the risk is that independent software providers will quickly cease the initiative and offer this as an API in the cloud.

We Need to be Agile

With the technologies for digital transformation coming on-stream and maturing the emphasis now is on how we deliver. The traditional approach with year-long risk-filled transformation programmes may still be relevant for core ERP, but to stay relevant in future we need to find a way to trial and mature new processes, business models and approaches on a smaller scale and in a more agile fashion. The success, I think, relies on better change and risk management and not technology focused methods. I am sure I will come back to this theme in a future post.

In the above I have shared my current thoughts on where I see ERP’s future in the digital era and how ERP can be part of the digital transformation. Beyond core business processes, I still think ERP can play an important  role in future, but now is the time for service providers (ISVs, VARs and outsourcers) to step up and provide customers with forward-thinking solutions that align with the new business models delivered through fast and agile methods. Or risk becoming obsolete!

 

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About Henrik Marx Larsen

I have worked with Microsoft Dynamics AX / 365 for Finance and Operations since 1997. I started out as a developer and progressed through multiple roles to become a Principal Architect. I have worked in a number of industries including manufacturing, distribution, professional services and retail. I am passionate about Microsoft technologies and ERP in particular.
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