Though the ERP software market continues to contract due to mergers and acquisitions, customers will have more ERP vendor choices in the future, thanks to an increasing number of on-demand options, according to a new report by Forrester Research Inc.
The new choices will be good news for companies looking to reassess their ERP software, many of which now have the resources to make a change as the economy slowly mends, the report states.
The options include managed hosting, partner hosting, and “pure” Software as a Service (SaaS) options, in addition to on-premises applications, according to the report, written by analysts China Martens and Paul Hamerman of the Cambridge, Mass.-based research firm.
The growing popularity of on-demand software means that more companies are operating with a “hybrid” mix of cloud ERP and on-premises applications, Martens said. Most companies are focused not on one or the other, but whichever model will provide the most advantage.
“Customers care less about [whether an application is on-premises or on-demand] than about its ROI,” she said.
Industry specialization and the introduction of new technologies that improve business process flexibility will also change the vendor landscape, according to the report.
That’s because companies need to be able to turn on a dime when it comes to geographic and industry-specific changes in the global economy. As a result, organizations must have ERP software that helps them adapt to market shifts, such as new competitors and government regulations.
“It’s not about where you are today, but where you are headed,” Martens said. “[Companies] need something more flexible.”
User-friendly cloud ERP
The report noted an uptick in the number of SaaS options and managed cloud offerings.
For example, Oracle recently launched the initial version of its Oracle Fusion Applications, while SAP is making its midmarket SaaS ERP suite Business ByDesign more readily available and also rolling out a number of on-demand applications built on the Business ByDesign platform.
Many companies have recently begun playing up the benefits of two-tier ERP, which promises to help organizations better serve the needs of a division or geographical region by having a subsidiary run a lighter-weight ERP and “hooking” that system into the larger ERP that is run at the corporate level, the report states.
SAP, for example, has been touting the on-demand Business ByDesign as an option for those smaller subsidiaries, and that then integrates with the parent organization’s on-premises ERP system. The most current version of Business ByDesign includes financial settings designed to make the integration easier.
In addition, many vendors are making their ERP applications easier to tailor, especially in graphical workflow and business process management tools, and are trying to make their software easier to use, according to Forrester. That includes better user interfaces, embedded analytics and simplified reporting.
ERP buying advice
So, what does this mean for companies looking to decide which ERP system is best for them?
Forrester recommends the following:
Look backward: Companies should consider how their ERP software use has evolved over time. Those that rushed into a major ERP implementation in the late 1990s because of the Y2K bug should ask if that approach is still valid. They shouldn’t feel pressured into a major ERP upgrade or migration but instead take time to identify “disconnects” between their business processes and ERP software.
Take stock of the current situation: A thorough assessment of a company’s IT environment will help to direct the ERP strategy. It should include determining the commitment to the current ERP vendor, which versions of the ERP software are in use, and whether those versions still need to be deployed going forward. Companies should also ask whether vendors or third parties still support the ERP releases. They should also determine how well the ERP software meets their needs and which questions they can ask themselves to set the stage for the next ERP move.
Ask “what if?” Companies should assess where they would be if their ERP vendor were acquired tomorrow. An acquisition can signal the product is nearing the end of its lifecycle or can pump new blood into it.
Know where your business is going and how ERP can help or hinder that process: Companies should determine if their foundation of on-premises software has “cracks” that alternative, best-of-breed components can fill. Customized or “homegrown” components might not be sustainable as a company grows and evolves. Packaged versions from specialized suppliers might be a better choice.