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It seems everywhere I turn lately I’m either reading or hearing about the death of the traditional premise-based ERP model. Case in point: there’s a terrific video that was recently posted on ZDNet of blogger Brian Sommer, former director of Andersen Consulting’s Software Intelligence unit and founder of TechVentive, Inc. and Vital Analysis. Sommer speaks insightfully about how these “giant, monolithic” ERP suites were first built ten to twenty years ago, before there was a commercial Internet and long before the business world began changing with the “speed and velocity that businesses are forced to react to today.”
Sommer goes on to point out how traditional ERP vendors have been accustomed to introducing changes at their own pace and how they’ve “ignored at (their) own peril the changes that are going on in the business environment overall” with products “that were never designed for the high-velocity world.”
Sommer admits that the SaaS-based model “isn’t necessarily the answer.” But I also agree with him that we are witnessing, at least on some level, the end of the premise-based ERP model as we know it. I say this with a few caveats.
First, I think it’s foolhardy for anyone to suggest that organizations which have invested tens of millions of dollars in traditional ERP systems are just going to chuck their legacy systems and adopt SaaS-based ERP systems like NetSuite. That’s not intended as a knock against NetSuite or any other emerging companies in this space. It’s just that CFOs and other decision-makers aren’t about to walk away from such sizeable investments their organizations have made in the legacy ERP systems they’ve taken great pains to integrate and customize for their organization’s operations.
A more likely scenario that will play out among Fortune 2000 organizations over the short term is a trend towards a more hybrid approach: to mix and match some of the new functionality being offered through companies such as NetSuite with existing ERP systems, such as access to ‘social intelligence’ from media such as LinkedIn, Twitter and Facebook.
A new survey of 214 executives from mid-to-large businesses that was sponsored by Netherlands-based ERP vendor Agresso and conducted by IDC found that the inability to easily modify legacy ERP systems “is disrupting their businesses by delaying product launches, slowing decision making and delaying acquisitions and other activities that ultimately cost them between $10M and $500 million in lost opportunities.”
Business leaders can’t afford to put up with those kinds of disruptions in today’s fast-paced, continually changing markets. But they’re not about to walk away from eight and nine-figure ERP investments either.
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