The End of ERP?

Citation

(2005), "The End of ERP?", International Journal of Productivity and Performance Management, Vol. 54 No. 3. https://doi.org/10.1108/ijppm.2005.07954caf.005

The End of ERP?

For the last decade and more, organisations have been looking towards enterprise resource planning (ERP) systems to provide co-ordinated, coherent operational processing and management information. The “dream” was that by linking all core systems together, real, value-added information would be available. ERP systems were known to be expensive; but it was felt that the benefits would simply outweigh these costs.

However, this dream seems to be fading. ERP systems are no longer the dominant enterprise application, according to a recent survey from PMP Research. Just 16 per cent of those polled say their current enterprise application environment is mainly based on ERP packages, compared to one third (34 per cent) in last year’s poll.

It looks as though the very large ERP systems have proved to be too inflexible. Many companies are opting to replace or to supplement ERP solutions with either best-of-breed software (26 per cent) or bespoke developments (20 per cent) – and remember, there was a massive, collective switch from “build” to “buy” over the ERP period. One reason for the switch is that organisations are keen to include e-business applications in their core enterprise systems. Only 7 per cent of the sample state that e-business is a specialist activity handled by a specialist department, while the majority (60 per cent) reckon it is now applicable to many areas of their operations.

As part of this trend, two-thirds (67 per cent) report they have been making efforts to link front-end e-business systems with back-office processing over the past two years. This is an area that has been so fast moving – with many standards only just being confirmed – that organisations have to be fast on their feet, and remain open to new, emerging technologies and products. This does not fit well with the single-supplier, ERP scenario.

Overall, companies are most likely to justify investment in enterprise and e-business applications because of a desire to improve their operational effectiveness and efficiency, a point acknowledge by 96 per cent. In contrast, cost savings, cited by 50 per cent, have reduced in significance as a goal.

Three-quarters (74 per cent) of those polled are also seeking better management information, with 71 per cent initiating actions designed to encourage departments or functions to share information more readily. Almost two-thirds (60 per cent) have sought to make enterprise information more personalised to people or functions.

But money for such innovations is still in short supply, the survey finds. Although 44 per cent of companies say that recent changes in the economic or business climate have not led them to modify their IT investment plans for this next financial year, a third (30 per cent) admit to a reduction in their IT budget.

Cost constraints also emerge as one of the serious threats to the success of new enterprise system initiatives, along with ill-defined project objectives (49 per cent), the difficulty of mapping business processes onto applications (45 per cent) and problems in managing outcomes and expectations (45 per cent).

Companies are responding by tightening up their approach to ROI – 42 per cent say this has become more rigorous over the past year – and a quarter (24 per cent) have looked at alternative measures apart from the usual purely financial metrics, such as assessing customer response, speed of service or a balanced scorecard appraisal.

It seems that an era of rapid change – both economic and technical – has rendered ERP systems “old-fashioned”, too inflexible and too expensive. They are not yet dead, but they are unlikely to dominate as they once did.