The highly customized ERP (enterprise resource planning) systems in place at companies around the world are looking a bit long in the tooth, to the point where by 2016 it will be common practice to refer to them as “legacy” software, according to analyst firm Gartner.
These systems are showing their age in a number of ways, chief among them their monolithic, all-in-one structure, Gartner analysts Denise Ganly, Andy Kyte, Nigel Rayner and Carol Hardcastle wrote in a report announced Wednesday.
ERP systems came into favor in the 1990s because they held the promise of a better-integrated set of business applications and processes than what had come before.
Since then, three groups have benefited from the ERP boom, according to Gartner. ERP customers have received “real business value” while software vendors have made plenty of money, the report states.
“However, the main beneficiaries were the major consultancies who managed the business process re-engineering and implemented the ERP solutions,” the analysts wrote. “These implementation service providers secured themselves a prosperous future by utilizing lucrative continuous service contracts that went beyond implementation into extensive customizations.”
It’s easy to find businesses that have actually spent 10 times as much money on customizations as on the initial license fees, and still more money to support and carry these customizations forward during a software upgrade, according to Gartner.
“The net result of 15 years of continuous customization is that these ERP implementations are now extremely ‘arthritic,’ incredibly slow and expensive to change,” the analysts wrote.
The notion of a single, integrated ERP system to handle a company’s every need “is being replaced by the emergence of cloud point solutions that deliver functionality business users want that the IT-controlled and centrally-mandated ERP megasuite previously struggled to deliver,” they added.
It may take 10 years or longer for a majority of companies to move to cloud-based ERP, but some segments, such as professional services, will take this path much sooner, according to Gartner. That’s partly because traditional ERP suites have done a better job of catering to companies that deal in products and assets, the report said.
Expect core functions such as manufacturing and finance to mostly remain on-premises, however, according to Gartner.
Some of Gartner’s conclusions are reflected in recent moves made by the ERP industry’s largest players, SAP and Oracle.
SAP has been buying up as well as developing a series of what it calls “line-of-business” SaaS (software-as-a-service) applications aimed at human resources, sales and other areas. The company has also unveiled a cloud hosting service powered by the HANA in-memory database for its traditionally on-premises Business Suite.
Oracle in turn has touted the benefits of deploying its next-generation Fusion Applications, which can be run on-premises or as SaaS, in an incremental fashion alongside its customers’ PeopleSoft, E-Business Suite and J.D. Edwards ERP implementations. There are some 100 different Fusion modules.
Meanwhile, the options are growing for pure cloud ERP, even for manufacturers, given vendors such as NetSuite, Plex, Kenandy and Rootstock.