The ERP industry is currently facing a paradox.
Many organizations are depending on ERP systems to manage an increasingly complex business environment -- and are demanding functionality to handle new issues. Yet they remain yoked to outdated infrastructure models and legacy ERP software.
The cost and complexity of upgrading ERP systems is still a hard sell for many companies. But new functionality and integration with outside systems will help ERP systems meet the changing needs of their customers and make for an easier sell, analysts said.
If ERP systems are to remain relevant, enterprise industry experts believe the next ERP iteration must include a large dose of intelligence from technologies like AI and machine learning in 2023.
Evolution means more customer choice
There's no doubt, however, that ERP will evolve in 2023 and customers will have more choices than ever, according to Eric Kimberling, CEO and founder of Third Stage Consulting Group.
These choices include offerings from traditional ERP vendors such as SAP, Oracle and Microsoft as well from Tier 2 providers and point applications from vendors not usually thought of as ERP vendors, he said.
The traditional ERP vendors will need to keep adding technologies like AI, machine learning, blockchain and IoT to fend off competition from upstart vendors focused on these newer technologies.
"[This may] also lead to further industry consolidation in the intermediate-term with bigger ERP vendors buying some of these smaller players," Kimberling said. "Although I don't know if that will fully gain steam in 2023 or maybe later."
The broader technology evolution has been significant enough that the term ERP itself may no longer be useful, said Jon Reed, co-founder at Diginomica, an enterprise industry analysis site.
Some ERP vendors are shying away from the term because they don't want to be tied to past concepts that ERP is inward-facing transactional software, he said. Customers want ERP vendors in terms of end-to-end processes rather than software categories. They want licensing models around data that make more sense in today's heterogenous IT environments.
"In the next few years, the term ERP is still going to be around. But the pressure will be on ERP vendors to show that ERP is relevant to their customers' business transformations," Reed said. "Charging someone for data all along the way when it's their data aren't winning approaches anymore."
Smarter business processes
ERP applications are evolving from simple transaction processing to more intelligent process reimagination and automation, said Brian Sommer, founder and president at TechVentive, an enterprise industry advisory and analysis firm in Indianapolis.
Business processes will be smarter and more efficient as embedded technology like machine learning gathers data on past methods and improves and automates them, Sommer said.
"ERP applications are bleeding into a new white space where processes rule the world," he said. "Smart machine learning exception-handling algorithms and rules will constitute the new ERP apps space. This is the new value proposition for ERP."
The established ERP vendors, which are still largely stuck in the on-premises days, will need to guide their customers into more modern ERP applications with platforms that can run in hyperscaler clouds. But the task will not be easy, Sommer said.
"These re-platformed products essentially do what the old apps did and can now be run on a hyperscaler's hardware," he said.
Moving to the cloud won't make ERP applications more innovative. But it does provide some important first steps, Sommer said. Looking ahead, forward-thinking ERP customers will push vendors to deliver more innovative products. For example, SAP and Oracle have used alliances with banks to add third-party process automation technology to their ERP applications.
ERP missed opportunities
One of the dilemmas that ERP vendors face is that many customers are balking at the cost and complexity of moving to more modern ERP systems like SAP S/4HANA while their existing ERP systems are still working, said Vinnie Mirchandani, founder of Deal Architect, an enterprise industry analysis site.
ERP is like the foundation for a home. Companies need it and will need it 50 years from now, but it's not cutting edge anymore, Mirchandani said. Companies are generally not willing to spend hundreds of millions to simply upgrade the software without the right incentive and business case.
"The challenge that ERP faces now is that people are not willing to upgrade it and spend a lot of money," he said. "But if the ERP product has evolved functionally, you can say, 'If you were to upgrade, you get all this in addition,' [and] a lot more people are interested."
One of the reasons ERP systems are in danger of becoming less relevant is that they missed out on adding functionality that has become much more important for companies today, he said. The core ERP functionality focuses on finance and materials management, which is still critical for organizations but generally makes up a small part of a typical IT landscape.
"ERP has missed out on a lot of new developments in the last 25 years," Mirchandani said. "Core ERP is still what was defined in the late 1990s. It's still financials and materials management. But so many new things have emerged -- enterprise asset management has become important, field service management has become important."
Move from delivering to predicting news
While some companies are hesitant to move away from legacy ERP systems, others are looking at these systems as a driver for digital transformation, said Gavin Verreyne, senior vice president of client success and digital transformation at Syspro USA, a manufacturing-focused ERP vendor in Tustin, Calif. The centerpiece of this transformation needs to be the data that flows through the ERP system, along with data from other sources that enhance the ERP data.
ERP data has been used primarily to deliver the "news" about what has happened in an organization, Verreyne said. But now this data must be transformed with intelligence to help organizations make decisions. In this sense, the planning part of ERP becomes much more important.
"It's no longer just about big data. It's about intelligent data because data comes from many sources, and [customers] are looking to the ERP to consolidate it in a way that they can make decisions against," he said. "Data is becoming so much more important, especially as the COVID pandemic has taught us that what you know today is not necessarily what you're going to need to know tomorrow."
Joshua Greenbaum, principal at Enterprise Applications Consulting, said the meaning of ERP itself may have evolved. The meanings of each of the words -- Enterprise, Resource and Planning -- have changed from when the term was first coined in the 1990s.
Still, the basic functions ERP systems perform have only become more important over time, he said. ERP's evolution will likely be similar to CRM's, which transitioned into the more complex concept of CX. ERP will need more collaborative and intelligent functionality to meet more complex demands.
"If you look at how the global economy functions today versus when ERP was invented, it's obvious that the software that ran ERP in the 90s is not the right software for today. And the concept of what ERP does is only getting more important," Greenbaum said. "You can't not do this strategic resource planning for the enterprise -- it's gotten much more critical."
Jim O'Donnell is a TechTarget senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.