Q: I recently read an article on the death of ERP, (Enterprise Resource Planning) systems with their massive costs, years to deploy, and very public failures to meet client outcomes. Yet, there they were at the NRF show, with massive booths and displays, still touting their end to end solutions. Is this death of ERP fact or fiction?
If you happened to attend the NRF show in January in New York City it is easy to understand the sense of overwhelm in making strategic technology decisions in this environment of constant, never-ending change. Retailers are trying to respond to customer expectations in order to stay relevant and competitive with all these new forces at play. They know exactly what they want to accomplish in terms of unifying channels, eliminating friction, but struggle with the right path to get there.
Where should a retailer begin to establish a technology platform and framework that will set them on the right course given today’s rapid pace of change where a wrong, capital intensive, time draining project can have a crippling impact on the business?
For many years, ERP (Enterprise Resource Planning) software has been purported to be the end-all, be-all for corporations looking to streamline their technology with an end-to-end integrated suite that many expected would solve the problems of disparate, non -integrated, solutions. This was the “safe” decision for many CIOs. However, what has become increasingly evident is that this “end-to-end approach” has not delivered the value promised by these ERP solutions with their massive sales and marketing machines. ERP systems have notoriously been slow to deploy, with massive costs to implement and maintain, and most critically have failed to achieve the desired results on average 30% of the time. That is a huge roll of the dice for any organization trying to respond quickly to an ever more competitive marketplace. The “safe” decision has now become potentially perilous.
The stories of failed ERP projects have become more and more commonplace. Just do a Google search for “Failed ERP” and you will understand why a recent research report stated that approximately 30% of ERP implementations fail to achieve even half the planned business benefits. That is frightening and it is causing many retailers to think twice about following this “lemming” approach to enterprise technology.
Here is an article in CIO magazine to that point: 10 famous ERP disasters, dustups, and disappointments.
This awareness of the high risk of ERP ground-up development projects have caused many companies to pause before they step into a 2 to 5 year undertaking, a lifetime in today’s fast-moving retail climate, where the people who actually made the decision may not be around long enough to see the project miss key milestones and potentially derail.
Depending on which studies and research you read, the ERP failure rate is anywhere between 30% to 50%, so as companies navigate these dangerous shoals they already know going in that there is a high probability of failure. Despite this knowledge, the sales and marketing muscle of these organizations can still seduce and position them as “safe decisions”. Nothing can be further from the truth. With tens of millions of dollars invested in systems that are failing, something has to give. With these continued public failures, the digital innovation and transformation in technology is likely to render these dated monolithic technology strategies irrelevant. When millions are spent, results are not delivered, and leaves a company worse off than they began, it is an unsustainable, failing model.
The origins of ERP were all noble, to eliminate the confusion, the chaos, brought on multiple software platforms that were not integrated. There was a time where no software within an organization would talk to each other, a time before open APIs, where one standardized solution seemed like the Holy Grail to eliminate the issues of separate technology islands. ERP vendors attempted to solve this issue with ground up development on a common platform, but in the process of doing so, the hubris was a complete loss of control to these vendors who now controlled every aspect of their operations. So while the original purpose was to help save these clients from their own non-integrated solutions, and it certainly made sense at the time, it makes little sense today, where agility and speed in the digital age are critical to survival. These slow moving, monolithic systems do not have the customer-facing speed and agility needed to respond quickly and pivot when necessary.
ERP began as a way to systematize processes but slowly morphed into an “Enterprise Resource Prison” where companies are shackled by costs and limited by function. The Industrial Age has moved into the Digital Age yet the ERP model is fully stuck in its manufacturing roots. Given this, it is appropriate to ask, are ERPs relevant to the 21st-century business? Perhaps for the standard tried and true back office functions like Financial, HR, Manufacturing, but none of this addresses the most important component of business success, the customer journey, and experience.
While ERP has been strong in traditional applications where companies have regulatory requirements that need to be managed, like financial modules, those regulatory requirements will not help generate a dime of ROI or profit to a business. They are not a revenue engine. The revenue generation engine lies firmly with the customer-facing applications of the new digital age. That is where investments need to be made to survive in a world of Amazon, where the customer is king. This requires agility and speed to service the customer that is beyond the scope and architecture of ERP legacy platforms.
If the customer is not in the center of your technology, you have a problem.
Modern retail businesses need to bring agility and speed to the customer experience. They require a technology stack, an architecture, with a fundamental shift away from single vendor mega suites toward a more nimble, curated application environment built on modern platforms. ERP implementations are rife with duplicated effort, customizations, manual integration and inconsistent data. Open APIs now allow more nimble customer-centric solutions to be implemented and tied to back-end systems (Traditional ERP applications) that bring high performance to the customer experience. That is the best of both world scenario where the shackles are removed to deliver an optimal customer experience across all channels.
The larger ERP players have been trying to solve this lack of customer centricity by acquiring front-end software platforms instead of developing them organically. As a result, they have been marketing end-to-end solutions that are more akin to a Frankenstein’s monster of bolted on integrations that have caused many of these implementations to become failing ground-up construction projects, costing millions of dollars with no clear endpoint.
Change is coming
This change from old guard ERP to the new nimble players is in motion. Companies are now seeing that they have far more options beyond this standardized ERP strategy. They see that the whole “end-to-end” pitch is a myth. Stringing together acquisitions is not an end-to-end solution. That said, big, entrenched enterprise ERP players will continue to slug it out because their offering are now legacy solutions, with customers deeply entrenched with millions and millions already sunk into it, and massive sales and marketing machines keeping the myth alive.
In a stroke of massive irony, the cloud has acted as life support for these old guard legacy systems, since companies that would never take on the expensive stranglehold of a 3 to 5-year on-premise ERP implementation, may be seduced to roll the dice the cloud. The cloud gives these platform the perception of being “modern” but it is the same old, same old. It is essentially putting window dressing on an antiquated model. The large ERP software companies are trying to shine up their legacy offerings in the cloud but it is the architecture you put into the cloud that matters.
There is a shift happening from the old guard systems to disruptive modern platforms.
There is a shift from the old guard, single-vendor ERP solution to more agile, nimble curated applications that work seamlessly via open APIs, (Application Programming Interfaces) that allow seamless integration between front end and back-end systems.
Companies realize that they now have the freedom to employ the best solution for the particular function, especially the vital customer-facing functions. There has been an awakening from the heavy emphasis and marketing mantra of “best practices” espoused by ERP vendors wanting to hang on to that “one vendor” mindset. Post-modern ERP will be a best of breed approach where the tradition applications can be handled by specific ERP modules (ie Financials, Manufacturing) and where the front end, customer-facing applications can be handled by more modern architected cloud solutions centered around the customer.
So how do you stay out of the ERP, Enterprise Retail Prison?
The great news for organizations today is that they can take advantage of the traditional back-end ERP style modules for the tried and true functions of Financials, HR, Manufacturing (and do these in Cloud even more efficiently) while utilizing far more modern customer facing, revenue generating cloud solutions to deliver a seamless sales experience for customers across all channels. The model of the single vendor ERP is an outdated, industrial age concept. It is all about employing the best solution and the power is in the hands of the retailer to deliver speed and agility and put their attention firmly on where it belongs, the customer.
This is the how you stay out of the Enterprise Resource Prison.
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Michael Dattoma is the president of The Bart Group Retail Merchant Services in New York. Michael has been consulting with specialty retailers for over 20 years. The Bart Group Retail Merchant Services delivers broad expertise to specialty retailers in areas including cloud point-of-sale and inventory control, unified commerce solutions across all sales channels and elimination of silos, mobile POS, CRM, and clienteling. Michael and his team advocate for independent specialty retailers to help empower them with the resources, tools, and expertise to thrive in an increasingly competitive marketplace. Ask Michael about retail technology solutions that reduce costs, improve efficiency and drive revenue. firstname.lastname@example.org / www.retailmerchantservices.com.