Composing a new future for ERP

Published on the 11/05/2022 | Written by Heather Wright

And why composable ERP isn’t the same as best of breed…

The days of monolithic ERP systems, big bang implementations and huge customisation work may be coming to a close, with A/NZ organisations apparently embracing composable ERP.

Neha Ralhan, Gartner’s Sydney-based senior principal analyst for ERP strategy, says across Australia and New Zealand there has been big uptick in cloud and software-as-a-service-based ERP, with clients keen to open up their application ecosystem and seeking new options. 

“If you change one it doesn’t mean the rest of it falls apart.”

Composable ERP, while not a new concept, is becoming more achieveable thanks to SaaS-based ERP applications, APIs allowing integrations to outside systems and advanced technologies. 

It’s a strategy that delivers a core of composable applications and as-a-service software platforms that are highly configurable, interoperable and flexible to adapt to future modern technology – and the changing needs of business.

Gartner is predicting that by 2025 more than 70 percent of large enterprises will move from a single-vendor monolithic ERP strategy to a more inclusive composable strategy. 

Ralhan told iStart Kiwi and Australian companies certainly aren’t shying away.

Ask her if she sees a future where ERP is a pick ’n’ mix composable scenario, and she’s adamant: “We are seeing that already.”

“Traditionally with ERP what you procured on day one was what you were going to get,” Ralhan says. “But when you have a composable ERP strategy it is not a big bang approach, it can be more of a staged approached.

“It is scaling, but not traditionally scaling – it is more depth of scale. It’s more around allowing you to pick and mix the functionality you want in your ERP but also allowing you to grow and change and be a bit more agile with your ERP as your organisation is as well. So your ERP strategy more closely resembles your business strategy, especially in the last two years where some organisations have had to change their core functionality overnight almost.” 

For the C-suite, there are obvious cost benefits for SaaS and cloud-based models as they move from Capex to OpEx, and the lack of need for a big bang implementation in order to start delivering value, is also attractive, Ralhan says. 

“A composable ERP approach, which we are seeing a lot more uptake of in Australia, especially into secure industries such as banking, education, and to some degree retail, allows organisations to stage their ERP. It also allows organisations not to burn their current ERP and their current ERP strategy basically to the ground.

“By having a composable ERP where maybe it is about one application as opposed to the whole suite, it allows organisations to renew the ERP on their terms as opposed to as dictated by external forces.”

For some companies the journey to composable is coming as they renew particular functionalities within their existing ERP. For others, it’s an opportunity to add new functionality, such as HCM, which they want to integrate into their wider ERP ecosystem.

“That is where composable really comes into its own,” Ralhan says.

“When we’re talking about the evolution of ERP, with the best of breed approach what organisations found was that when you dismantled one aspect of your ERP who knows what repercussions that had across your organisation.

“With composable ERP it becomes more about the services, the applications, the data, the security. But if you change one it doesn’t mean the rest of it falls apart. 

“The ripple effect with a best of breed approach was difficult to manage from an integration point of view, data point of view and from a security point of view, however with a composable approach it allows organisations to implement in a staged approach.”

Local companies are also following a global trend to test the market much more than they have historically when looking for ERP vendors.

Gartner research shows that by 2024, at least 50 percent of existing ERP customers will evaluate multiple vendors, rather than automatically adopting the latest versions of incumbent ERPs.

“In Australia, a lot of my clients are looking to what fits their organisational needs not just today but more of a long term partnership as opposed to a vendor going ‘this is what you’re getting’,” Ralhan says, noting that plays again into the increasing best of breed/composable approach being taken.

“And that also works with another larger trend which is customisation is falling out of fashion and organisations are realising that the functionality they require from their ERP is out there.”

But composable ERP isn’t magic and it’s not going to solve all problems.

Ralhan says it requires a certain degree of digital maturity and desire, with organisations who can carefully match up their ERP strategy to their business strategy more likely to succeed. 

“A lot of the clients we speak to and a lot of our research shows that the success of ERP is driven by change management efforts or transformational efforts.”

With that in mind, Ralhan says companies looking to move to composable ERP need to have a clear understanding first and foremost of what they want their ERP to do.

“I know that is a broad statement, but when we see ERP failure it’s often linked to needs not being aligned, so that’s absolutely the first thing a company needs to do to ensure a smooth transition.

“It’s about needs analysis, and also taking a strong inventory of your current ERP as well. 

“We see this often as organisations who are looking to burn down their ERP to the ground – a lot of what they are after is a viable option with their current ERP vendor or possibly with an update or whatever it may be.”

She cautions companies also to be clear that composable ERP is a on-going process, rather than a one-and-done project. 

While it might sound like difficult times ahead for traditional ERP vendors, it’s really not so bad with most already moving with the times, with many of the big players’ applications allowing for a composable approach.

“A lot of vendors have moved their products over to cloud and SaaS-based modes and are also increasingly retiring previous generations of their application suites,” Ralham notes.

“And another thing we have seen is that vendors have acquired SaaS-based applications as a way to accelerate their cloud capability and their growth in that market.”

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