The year ahead will be crucial for ERP as its ability to help businesses address persistent issues and adapt to new conditions is tested.
ERP continues to run as a back-office environment, often as an on-premises system. But cloud migrations and the integration of technologies such as generative AI into ERP indicate that this traditional back-office tech could become a vehicle that helps companies improve productivity and develop new business models.
ERP industry analysts and veterans expect that several trends will characterize ERP in 2024, including the continuing adoption of cloud, the introduction of useful generative AI capabilities, and the integration of other applications such as enterprise application management and field service management (FSM).
Cloud ERP momentum continues
The movement toward cloud ERP will continue in 2024, according to experts. Much of this will be driven by a desire to access cutting-edge features such as AI and the need to modernize business processes.
The overarching ERP vendor strategy is also centered around moving customers to the cloud, and technology development is centered on cloud applications, said Isaac Gould, research manager at Nucleus Research.
Some vendors have introduced programs designed to make it easier for customers to move to the cloud, such as SAP's Rise with SAP program and Microsoft's Accelerate, Innovate, Move program. They have also pledged to continue to support on-premises customers, but technology development is clearly centered on the cloud, Gould said.
"From a business standpoint, vendors are discounting on migration services to help you move," he said. "From a development standpoint, all the tools are either only for their cloud users or it's IT technology designed to help move your data onto the cloud."
Anise Madh, global Infor practice general manager at Wipro, an ERP systems integrator and services provider, also sees cloud as the biggest ERP trend in 2024, especially for midmarket companies.
There are two main reasons why companies are moving ERP to the cloud, Madh said. The first is the available skill sets to handle the infrastructure, security and development of ERP systems, as companies are finding it increasingly difficult to staff on-premises environments.
"The legacy skill sets are becoming obsolete, nobody wants to code anymore, and network infrastructure is a commodity that someone can provide you for lower cost," Madh said.
The second is the development cycle, as vendors including SAP, Oracle and Infor are prioritizing developing new functionality for cloud versions of the products, he said. Plus, businesses run the risk of high costs and outdated technology if they stay on legacy ERP systems.
However, the move to cloud ERP remains challenging, Madh said, because companies that have legacy on-premises systems must get data ready, figure out integration issues, and transform or delete customizations.
"But before you even get to that point, how do you get this approved by the executive team? Because it's a huge investment, and [they think,] 'Why touch [the legacy system] if it's working,'" Madh said. "You have to show them what they're missing -- not that what [they] have is not working, but what they'll miss out on in a few years."
Useful generative AI will appear slowly
That AI is a part of ERP systems should not be a surprise, as most ERP systems have utilized AI and machine learning technology and capabilities for years. In 2023, however, ERP joined the generative AI explosion, with virtually every vendor unveiling functionality -- often a chatbot such as SAP's Joule built on large language models that can generate text, images or video from data to help users perform tasks.
The product news trended to be forward-looking, and there are still relatively few generative AI use cases in ERP. Nevertheless, the GenAI trend is expected to continue in 2024, with vendors continuing to roll out functionality for ERP applications.
Transformational GenAI applications are still a few years away, but generative AI chatbots will prove to be useful productivity improvement tools, Gould said.
"A lot of this is around helping people query their data," he said. "The idea is that these copilots allow you to ask questions on your own data, essentially helping you generate and pull reports very quickly."
GenAI is overhyped right now, and it will take time to see actual use cases showing up inside ERP applications, said Greg Leiter, a research director at Gartner.
Greg LeiterResearch director, Gartner
In the short term, there will likely be a combination of applied AI and GenAI that provides productivity improvement opportunities, Leiter said, with some ERP use cases beginning to emerge in 2024.
"GenAI works better in areas outside of the system-of-record processes of ERP systems, like on the customer-facing side and CRM," he said. "Some of the use cases in areas like HR applications are interesting, but they're not necessarily that compelling yet."
One thorny issue that needs to be worked out is the cost of GenAI capabilities for customers, Leiter said. Last summer, SAP said it could charge customers up to a 30% premium for AI capabilities, while other vendors such as Workday and Oracle have said they won't charge more.
Every vendor will find a way to monetize GenAI capabilities, with the charges being determined for different tiers of users and the value they're deriving from the technology, Leiter said. Large ERP vendors could also have an advantage in what they're capable of delivering.
"It's not settled yet about how vendors are going to do this," Leiter said. "It's expensive technology, the computing power you need to run this stuff is expensive, so the largest vendors will be able to do this. But it remains to be seen if the tier 2 vendors will take advantage of partnerships with GenAI companies to deliver it."
AI already has been doing valuable tasks including process automation such as invoice reconciliation and forms management, said Joshua Greenbaum, principal at Enterprise Applications Consulting.
"Taking the machine out of the human is a good thing, and in areas where AI has been doing this for a while -- particularly with machine learning -- it's a killer ROI," Greenbaum said. "That's what we should talk about with AI because it's the real world, not the future of language models that are unfortunately going to be dependent on a lot of bad data that needs to be cleaned up before you get anything of value from them."
ERP expands to include more functionality
ERP platforms will expand to include more functionality that has been in standalone applications, and new capabilities will be integrated more outside the core ERP systems, according to the experts.
For example, ERP vendors are adding "growth engines" to systems by acquiring or developing features such as FSM; configure, price and quote; e-commerce; electronic data interchange; and time and attendance applications, said Predrag Jakovljevic, principal industry analyst at Technology Evaluation Centers.
In the last few years, ERP vendors have also been adding capabilities in connected workforce applications that are intended to improve frontline worker productivity and efficiency, he said. For example, IFS acquired Poka and Falkonry, QAD acquired Redzone, and Epicor acquired EFlex, while Microsoft now offers Dynamics 365 Remote Assist and Dynamics 365 Guides that use HoloLens technology to assist technicians.
"An emerging concept suggests that while an ERP acts as the system of record, a connected workforce solution serves as the system of action," Jakovljevic said. "It's expected that there will be integrations between connected workforce solutions, quality management systems and manufacturing execution systems."
Large ERP vendors such as IFS, Infor, Microsoft, Oracle and SAP are looking to extend their systems to make them "stickier" by giving customers more options to consolidate functionality, Gould said.
"In the past where ERP vendors were looking to add those adjacent applications like CRM or HCM to their ERP systems, now they're looking at what IT needs in terms of those solutions," he said. "[In 2024,] you'll see a lot of ERP vendors fighting in that space with their own integration and automation platforms, with the idea that being able to consolidate more of your data under the ERP platform is better than storing your data in Amazon S3, for example."
ERP in 2024 will be a push-pull conflict between the need to innovate and the requirement to have a standardized clean core, where customizations have been modernized or deleted, Greenbaum said.
When companies have a clean core, they can begin to innovate on processes that are on the outside of the direct purview of traditional ERP, such as e-commerce, supply chain, customer experience and employee experience, he said. But they can't do that edge innovation without getting to the clean modern core first.
"The problem is that a lot of customers need innovation now -- they can't wait," Greenbaum said. "They need to make a difference in some basic parts of their business, so they're trying to juggle these two semi-opposing requirements and get the right combination of edge innovation and ERP innovation in order to get something done now and set up the foundation for future."
However, some of what will dominate ERP business discussions in 2024 will be familiar, including issues around costs and spending, data, personnel, business processes and risk management. These issues permeate every company of every size in every industry and will continue to affect ERP strategy this year, he said.
"That stuff doesn't go away. We started 2023 with those problems on the table. ... We will start 2024 the same way," Greenbaum said. "And we're going to end 2024 with those five issues dominating the thinking of enterprise customers worldwide."
Jim O'Donnell is a senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.