The concept of ERP (enterprise resource planning) was coined about 30 years ago to describe systems that strung together all business operations for a company both at the data and application layer. What followed was the birth and growth of enterprise ERP solution companies.
I am not saying the need for ERP systems is going away, ERPs are necessary and advantageous for growing businesses and enterprise companies. What is fast becoming obsolete however is the earlier generation of monolithic and complex ERP systems.
How do early generation ERP systems behave? Below are some ways to differentiate these legacy systems from modern, lightweight platforms.
1). Functionality overload versus carefully curated function sets
Traditional ERPs typically have heavy functionality and function set. In fact, the average company uses less than 25% of the functionality of ERPs. Since customization and configuration in these early systems were so difficult, vendors built one vanilla superset version, and correspondingly customers had to buy the superset of functionality. As functionality was added over the years, such applications also got saddled with technical and UI debt. Modern platforms or next-generation ERPs on the other hand focus on carefully curating the must-need functions reversing the statistic such that 80% of the customers could be served by 20% of the functionality of the traditional ERP, while allowing all other specific workflows need to be configured.
2). Clunky user interfaces versus simple, clean interfaces
Since older systems heavily emphasized training, systems were almost built to have high barriers to use. These systems were also developed for a specific set of corporate users, so ease of use was seldom a focus for the older-generation ERP systems. Today, however, B2B software suites’ rating is heavily dependent on how easy, clean, and self-discoverable their user interfaces are. The most successful B2B systems and ERPs realize there is a shift towards a consumerization of enterprise software.
3). User-based access restriction versus democratizing access
Seat-based or user-based pricing is the dominant form of pricing for the early generation ERP. One of the many disadvantages of this pricing model is that it restricts access across business operations. Newer generation SaaS enterprise systems have graduated to product-based or volume-based pricing, or a hybrid between user-based and volume-based pricing. This further helps to democratize access across user types, internal and external to the company.
4). Heavy customization versus customization offered as front end configuration
Despite heavy functionality or perhaps even because of it (tough to understand which functionality is relevant when functionality is not easily discoverable, tough to use, and overwhelming), traditional ERPs cater to the very basic needs of customers. Customization was/is hence norm to help cater to customers’ specific business operations and workflows. Newer-generation companies on the other hand have transformed customization to user interface-driven configurations. This means customers can self-build to their operations and workflows without dependency on the vendor, and without incurring massive customization charges.
5). Complex and expensive onboarding and implementation versus quick and less expensive onboarding
Traditional ERPs could 9 months to a year plus of implementation and onboarding time. From (1), (2), and (5) above, complex user interfaces, heavy functionality, and customization needs can often drive this onboarding time up even further. Longer onboarding time also means much higher costs for the customer. Newer-generation systems have relatively much shorter onboarding and implementation times and lower associated costs to get users up and running.
6). Closed systems and expensive integrations versus open APIs and productized integrations
Legacy systems are often on-premises applications. Even if cloud-based, the systems do not have readily available software development kits (SDKs) and are not built with an open-API philosophy. This could make traditional ERPs tough and expensive to integrate with. Modern business management systems on the other hand are built with a productized integration layer and have corresponding open APIs. This makes integrating with other systems smooth and relatively far more inexpensive.
7). Extensive and expensive training versus easy training and user journeys that can be self-guided
Training costs are high when implementing traditional ERPs. The problem is that these costs can be ongoing since training is also required after yearly system upgrades. Modern ERPs with intuitive user experience ethos is built so varied user types can self-guide their journey through the platform, in turn, reducing training expenses.
8). High switching on/off costs versus low switching on/off costs
For all the reasons mentioned above, the costs to migrate onto and off a traditional ERP are very high. This allows old-world ERP providers to charge a huge sum of money for implementing this massive overhaul. However, leaders of companies are increasingly viewing this high switch on/off costs as a major risk. The most successful implementations are with systems that build retention off the strength of the product suite versus because switching costs are high.
9). Huge team size to manage the ERP versus no team just to manage the system
For a traditional ERP implementation to be successful, a dedicated team is required just to manage the project and system. These costs are layered on top of the cost of the license, the onboarding, implementation, customization, and training. Compare with a modern system that has a much easier interface, integrations, and ability to configure – all factors that mean no team or added expense to maintain a system.
How do we deal with the death of the traditional ERP system? The solution is not a binary one of whether to use them or not – if already purchased, it is not possible nor recommended to entirely get rid of incumbent systems because of the critical data they store and the cultural dependency on these systems. The best of both worlds can be achieved by bringing in lightweight, intuitive systems or next-generation control towers to sit on top of legacy systems. This could also improve the ROI from a legacy ERP – a lightweight, intuitive wrapper on top of a legacy system can improve and increase the use of the underlying application’s data. Where a legacy system has not been purchased, I predict that the oligopoly of heavy-weight ERPs will not be the first choice for modern, fast-growing businesses. These innovative companies will steer towards lightweight business management systems with clean user interfaces, that allow all user types to self-guide their product journeys, that democratize access for all users and provide configurable asset creation and tracking.
Suuchi Ramesh founded Suuchi Inc. 4 years ago after a 12 year career in technology and predictive data analytics. Before starting Suuchi Inc., Suuchi had scaled the B2B side of multiple tech startups from zero to nearly $30 million. Suuchi now plans to do the same with the GRID. The GRID is a mobile-first solution for transparent collaboration, real-time updates, and data analytics pulled straight from the supply chain.