04/02/2014 Leave a comment
As if CIOs didn’t knew it. ERP and bespoke applications are unblendable. It is trying to dissolve oil in water. It gives you a colloid where customized particles are dispersed through the standard code. It becomes very hard to retrieve these particles if the standard code needs to be changed. Regularly this leads to a destruction of the complete application or delivers another failed IT project. Gartner posits that by 2016 these customized ERP systems will become so called ‘Legacy ERP’ and will hamper IT departments to innovatively grow or even put a huge burden on their overall existence.
The problem seems to be the lack of flexibility of legacy ERP. The claim is that legacy ERP is not agile enough to meet changing business needs due to the overwhelmed insufficient documented modifications in a customized ERP system. Besides, the costs of legacy ERP are running high. On the issue of the impact of ERP on organizational flexibility is the literature highly divided, as Gartner should know. There is indeed a stream of academic literature comparing ERP systems with liquid (digital) concrete poured into the company. On the other hand, recent research has revealed that the positive or negative impact of ERP systems on organizational flexibility greatly depends to extend of assimilation of the ERP systems. ERP systems drive organizational innovation to a certain extend which is greatly depended on the use of the ERP system and how use becomes routinized in the processes and projects of an organization. This is what is mend by assimilation of ERP systems.
The whole story reminds me of mainframe systems. These ancient IS systems were the first legacy systems and were overtaken by flexible midrange IS systems. Applications move further into PC-based-network point solutions. They called it ‘client-server’ systems and applications. By the 1990s ERP slung the pendulum back to heavily centralized systems not seldom without heavily customized modules and components. In that way ERP systems were transformational in nature and indeed change almost the complete IT landscape. In less than a decade since the 1990s, 76% of manufacturers, 35% of insurance companies and 60% of the U.S. Fortune 1000 companies have adopted an ERP system. Now tables turning and ERP is framed in the role of a ‘legacy’ mainframe, condemned to focus on a limited job of supporting basic non-innovative business processes.
Not that there is an easy answer to these problems. Gartners mentioned ‘postmodern ERP’ or hybrid ERP indicating a federated, loosely coupled ERP environment with extra functionality sourced as cloud services and business process outsourcing. According to Gartner the Cloud seems to be key for a solution. A shift is to be made from monolithic ERP to hybrid ERP incorporating differentiating functionalities based on cloud applications and not on customized ERP. The Cloud is not so much the silver bullet, but it can deal with the insufficiencies of monolithic ERP, which focused all too much on tangible products and asset-centric industries and leaving too much crucial business processes without any (central) IT support . Service-centric organizations such as professional services, universities, government agencies and digital media are not so well served by ERP systems. This is much noticeable in my own organization (university) where an SAP implementation only covers the basic financial and procurement processes, but the line-of-business processes are supported by very lean cloud applications. The question is now if the cloud will also be transformational in nature. It looks like it does. Cloud applications are real-time in nature due to augmented broadband connections and increased server capacity and performance. And opposed to ERP systems, cloud applications can be purchased from a multitude of software vendors or cloud providers. The own development of cloud applications (e.g. mobile apps) can easily be done, much easier than customizing ERP systems. Cloud application can easily fill the business gaps that ERP systems have left behind and focus more on core business processes.
As for me, I am a bit afraid of the term ‘loosely coupled suites of cloud functionalities’. It is the degree of coupled IT systems that is largely accountable for the organizational flexibility as well as for the strategic alignment of all business processes. Businesses need to function as a holistic system, where all business processes are aligned to the corporate strategy. The danger of dis-alignment between IT and business lurks behind the horizon with loosely coupled systems. We saw this already happened in the past. But loosely coupled should not be the same as loosely managed. This can be a new challenge for the CIO.