Resurgence of Best-of-Breed ERP Applications

PostedOn: 2016-08-25 11:30:21

The computer business goes in trends. One example is cloud computing where software vendors host an indistinguishable solution for all their customers. This is currently very popular, with an increasing market share vs. on premise applications; one way of looking at it is that customers are outsourcing their IT infrastructure. In the 1970s, timesharing was big, but between then and now most companies wanted to do everything on premise with readily available reasonably priced hardware. 

Another tendency is whether a company should buy the bulk of its business systems from a single vendor or purchase applications from the best vendor in that space (“best of breed”). These two trends are related.

When companies first started using computers for commercial purposes, such as accounting, this involved buying luxurious hardware and employing people to write the software. Later, vendors started selling packaged software, but the market was disjointed in as much as the software vendors sold individual applications that addressed different business needs. A company might use software from one vendor for accounting and from another vendor for keeping track of employee timesheets.

Then, in the 1990s, software vendors came out with Enterprise Resource Planning (ERP) software, suites of integrated applications that applied to many business activities. These were successful because companies had difficulty integrating the data from disparate systems and this became important as more business applications became available. Also, most of these systems ran on less expensive Unix and Windows servers. The mainframe was relegated to specialist high volume applications such as processing credit card transactions.

ERPs became even more popular because of the Year 2000 scare this was an opportunity to throw out legacy systems and start afresh; the associated costs were justified because of the risks associated with the Y2K problem.

However, in the 2010s the cloud has been a big challenge for ERP vendors who claim they can do everything. Just as the prevalence of mainframe software vendors never made the jump to client/server computing, some major players in the ERP business are challenged by the cloud.

Most cloud vendors sell a single product that addresses a limited range of their customers’ business needs but meets these needs very well. Examples include expense processing, human resources, and marketing automation. The most successful applications are those that enable companies to do things that are difficult or unfeasible with on-premise software. Salesforce.com is perhaps the most successful cloud application, largely because salespeople often work remotely and need access to information on mobile devices; these features come included with most cloud apps.

In North America, this interest in cloud applications is one reason why companies are moving away from using business software from a single vendor. But there are other important reasons too, such as:

1) New technology. The establishment of standards for interoperability between different software has made it easier for best-of-breed applications to coexist, both in the cloud and on principle.

2) Better functionality. Single vendor ERP solutions may have wide-ranging functionality but often are limited or require extensive customization in certain areas, on the other hand, developers of best of breed software have much more widespread domain experience. Business users understand this.

3) Risk mitigation. With a single vendor solution, customers are totally dependent on that vendor; they have made such an enormous commitment that it is much more difficult to switch if they are unhappy with costs, service or functionality.

At a recent trade show for a financial audience, specialist vendors were selling software for reporting and accounting for companies that use enterprise ERP systems such as SAP and Oracle. These best of breed applications integrate with data from the big boys and offer superior functionality. For the established vendors, even the core functionality of their offerings is becoming less attractive.