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What is Ahead for ERP in 2016?

Two Roads Diverge

The New Year is quickly approaching. As we reflect back on the past year of ERP, and before making predictions for the year ahead, we must first acknowledge the upcoming trends of 2015, which are likely to impact next year.

  • Traditional Client/Server ERP is Dead
    • At Sage’s annual conference July 2015, CEO, of 14,000 employees, Stephen Kelly announced that they are dropping the acronym “ERP” from their product names and said, “We believe ERP is a 25-year-old term, characterized by cost overrun, and in some cases even business ruin. To the finance directors of the world, ERP stands for Expense, Regret, and Pain.”
  • Faster Development and Greater Flexibility
    • Salesforce’s San Francisco Dreamforce software event is the biggest in the World. It attracted over 100,000 people hearing about the advantages of CRM and the cloud. Salesforce is yet, even more eager to sell the advantages of lightning fast development and application personalization with “clicks, no code.” These benefits have attracted many partners of which more than 2,000 offer apps on the Salesforce1 platform. Some of these are comprehensive ERP systems, such as those offered by Kenandy, Rootstock, Financial Force, Sage Live and Service Max.
  • Cloud Computing has gone from Probable to Inevitable
    • Amazon’s conference in October 2015 demonstrated that cloud computing has gone from probable to inevitable. Amazon WS, a startup 2006, now has 1 million customers located in 190 countries, having a $7B annual run-rate business, growing 81% last year, which makes them the fastest growing enterprise technology company in the world. Last year also showed that Amazon is a gifted software developer. For example, their new BI QuickSight is powerful and cheap; promised to cost only 1/10 of traditional alternatives such as those 255 BI apps that are available on their marketplace.
  • HTML5 and In-memory Computing are the New Standards
    • Microsoft Dynamics AX 7 announcement in November further emphasize the trends mentioned above. In addition they are talking about the benefits of DevOps to support “a living ERP system,” in-memory BI embedded directly in the application using the same user interface. Another key takeaway is a new touch-enabled HTML5-based user interface, supporting all type of devices with no need for Client software anymore.

The technology landscape has changed drastically in just a few years. Flash, Microsoft GUI and Java on the client are quickly disappearing. A prominent University recently reported that they replace Java with Scala as its preferred programming language. Workday, the most successful ERP newcomer during this century is following the same route. Workday, providing HR and Finance apps in the Cloud as a service, also help unveil two other trends: ERP is no longer “one size fits all” or a single product suite. As Charles Phillips, CEO of Infor, said at their 2015 conference, “Having the whole stack doesn’t matter anymore.”

As ERP is bumpier than ever, it has been interesting to follow how the world’s two largest ERP vendors Oracle (ca 12% market share) and SAP (ca 24% market share) diverged in strategy five years ago. Oracle bought the hardware manufacturer SUN while SAP announced availability of a brand new in-memory database, HANA. In what follows, we will take a closer look at the aftermath of these fateful decisions.

Oracle Refocuses on Software and Cloud

Oracle’s Fusion application project started shortly after Oracle’s USD 18 billion-acquisition spree of PeopleSoft, JD Edwards, and Siebel Systems in 2005. As the undertaking of rewriting its ERP system in Java was beginning to be completed, Oracle, in 2010, decided to buy the limping hardware supplier SUN. The mantra became “Hardware and Software, Engineered to Work Together”. Pushing Fusion applications was not prioritized. Three years after the launch of Fusion, the analyst Forrester called the number of Fusion customers, a “drop in the ocean” compared to Oracle´s overall applications installed base.

When other ERP vendors concentrated on preparing for digitalization and cloud, Oracle tried to sell a “12-cylinder gas-guzzler” to put in your office. It did not work out very well. Now, the question is rather: Who wants to buy Oracle’s hardware division? The famous book title: ‘What’s the difference between God and Larry Ellison? God doesn’t think he is Larry Ellison’ needs to be completed…

Oracle should also realize that the traditional RDBMS market is shrinking. Amazon’s attractive migration offerings to open source databases is one reason prices will go down. Another reason is that SAP’s new application offering does not support Oracle’s database (which is now what 80% of SAP’s customers have). If applications is not Oracle’s key to the future, what is? It is, therefore, good news for Oracle’s shareholders that its recent messages resonates well with the needs of the marketplace.

SAP Aims to Run Simple

SAP is well known for having the most complicated ERP system ever made. 45,000 tables, 400 million lines of code, and more than 400,000 screens. The numbers are astonishing. SAP ERP Suite is the incarnation of ERP complexity. SAP’s leadership finally realized more does not equal better and that a need for action was necessary before the business was stifled due to its own weight.

  • February 3, 2015, SAP announced a new generation of ERP named S/4 HANA. It is an entirely new product built on the most up-to-date design principles. SAP’s CEO Bill McDermott described it is a game-changer, the most important announcement for SAP during the last 23 years (i.e., since the launch of R/3). Some of the keywords is easier to learn and use, speed and simplification wherever possible. The key enablers are the in-memory database HANA and new user interface, Fiori.

SAP is at the top of its game with 67,000 employees and an envious P&L statement. Yet, it is ready to take a remarkable gamble. The hardest thing to do as a market leader is introducing a product and concept that directly challenges the paradigm that led to your success. In particular, SAP faces three challenges:

  1. There is no guarantee the idea of simplified ERP will appeal to existing customers or new prospects that are used to managing complex and inflexible application suites, where these characteristics are part of justifying the CIOs compensation.
  2. Even if the concept of radical ERP simplification succeeds, there is no assurance that buyers will choose to buy (or rent) next generation ERP applications from SAP.
  3. Massive ERP rewrite projects has left traces that horrifies. MAN X, DOCA, MOOSE, DEM, SF, and Project Green are a few examples. Why is SAP taking the risk? SAP’s co-founder and chairman Hasso Plattner answer is: “If we did not rewrite their 400 million lines of code, we will die… sooner or later.”

More of the Same

My prediction for 2016 is that we will see more ERP vendors joining the movement for simplification as a way to radically improve agility and decrease cost. Not always because they want to, but because they have no choice if they want to stay relevant.

  • For a software system to help its customers take advantage of radical change, it must be radically changed itself.

A significant challenge of ERP renewal is that a simple program rewrite or conversion will not do the trick. You could mechanically transform the code into a new arrangement or language – but then it would still be structured the same and perform the same functions in the same way as before. The result of screen scraping gives the same results. Radical rethinking of ERP does more often than not require redesigning it from scratch, using modern technology and sound application engineering principles.

How much the ERP landscape will have changed in three years will be interesting to see? Nevertheless, one thing is for sure; the changes coming will benefit the users of ERP!

Author: PeterBj

Proud to be enough experienced to understand that there is more to learn

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