Digital Disruption in ERP Industry by Hybrid ERP Systems

New enterprise-grade applications are fast replacing old enterprise resource planning (ERP) systems as companies move to become more flexible and more mobile. These new applications can be integrated with traditional ERP software into “hybrid ERP” systems to enable specific functions such as human resources, supplier management, and e-commerce to operate with greater agility and independence from old-style IT organizations.

The brave new world of business application software is rapidly transforming how corporate IT departments source and implement all kinds of critical systems. Perhaps nowhere is this truer than in the realm of ERP systems, the software that runs virtually every large company in the world. CIOs are rethinking their approach to ERP, thanks to modular, cloud-based business applications that offer viable alternatives to the unwieldy, inflexible, and expensive systems that have long dominated the sector.

Companies are already having a disruptive effect on the ERP market by offering sophisticated, flexible, highly mobile, and easy-to-use applications in all manner of functional areas, including finance, procurement, supply chain, sales and marketing, and human resources. Sold on a subscription basis, these software-as-a-service (SaaS) systems offer companies the promise of reduced costs, while giving customers, suppliers, and employees alike a better user experience, greater functionality, and more control over how the systems are used. And integrating these applications into companies’ legacy ERP systems — creating what has become known as “hybrid ERP” — need not be the highly complex, expensive process it was in the past. The resulting ecosystem of fit-for-purpose hybrid ERP software can be designed in a variety of combinations customized for the needs of most organizations.

 Yet as most CIOs already know, the hype surrounding these new technologies is sky-high, and vendors are pumping millions of dollars into marketing them. Choosing the right applications and stitching together a fully functional ERP-based ecosystem requires robust integration and security capabilities that will likely push many companies to their delivery limits. So it is incumbent on companies to evaluate applications carefully in light of their actual needs, and to work up detailed business cases that take into account both pros and cons. Only by doing so will they be sure to realize the full value of these offerings.

Integrating SaaS applications into legacy ERP systems need not be complex or expensive. Hybrid ERP takes many corporate functions out of the core ERP system Source: Sourcing and vendor contract management, Contingent workforce management, Vendor invoice self-service Web and mobile storefront Workforce management and recruiting

The first is the advent of cloud computing, which is beginning to make obsolete the notion of a single enterprise wide business system, while greatly expanding companies’ ability to provide critical corporate data and functions on a mobile basis. Now, companies can knit together a loosely coupled business system consisting of fit-for-purpose, cloud-enabled applications on the perimeter, tethered to more narrowly focused legacy ERP BackOffice systems.

Moreover, with the functional applications based in the cloud, far-flung employees can access and use the data they need on any number of mobile devices, even wristwatches and eyewear. Indeed, this degree of data mobility has become a requirement for virtually every business process.

Second, by basing these flexible new applications in the cloud, companies can evolve away from their massive ERP infrastructure investments, which never fully delivered the end-user experiences and mobility increasingly demanded by customers, suppliers, and employees. Indeed, the shift can already be seen in the marketplace. Now, companies can build new sales channels, rapidly refine the look and feel of their Internet and mobile offerings, work more closely with suppliers to monitor and automate their supply chains, and provide employees with customizable mobile apps to support how they conduct business.

Finally, business unit and functional leaders such as chief procurement officers, chief marketing officers, chief human resources officers, and others have long demanded greater influence over the technologies that run their operations — and hybrid ERP has the potential to provide just that kind of flexibility. These applications offer significantly lower barriers to entry in terms of time and cost, allowing functional teams to pilot and implement function-specific applications — in some cases, without any help from the IT department at all.

 The move to hybrid ERP systems can be seen in the speed and degree of new business software investment in cloud-based SaaS applications. Net new license revenues for traditional ERP systems have been declining since 2013 to a level that has already been surpassed by total revenues from cloud-based SaaS solutions. Even the traditional ERP vendors’ SaaS revenues will soon surpass their revenues from legacy ERP sales. That will ultimately cut back on revenues from maintenance, and likely weaken their earnings as well, given the lower margins to be gained from SaaS sales. 

As promising as the new cloud-based hybrid ERP applications are, no company can justify in investing in them without having made a strong business case for their tangible business value under real-world conditions. Such a case should take into account both the benefits of these systems and their costs, weighed carefully against those of the legacy ERP systems the company is using now. And the kinds of benefits, costs, and risks to be taken into account will likely differ depending on the industry and the market.

The corporate world is fast moving beyond the era of traditional ERP, driven by the need to engage more closely with customers, suppliers, and employees alike, and by a desire on the part of companies to leverage that engagement to differentiate themselves from their slower moving competition. Linking new cloud-based functional applications to their legacy ERP systems offers companies the best of all worlds — but that doesn’t mean they should jump in blindly. As with every major IT transformation, companies must create a full business case in which they carefully weigh the pros and cons of these new systems, and then continue to measure the post-implementation results, if they are to realize the true business value of these programs.