Like many other industry observers I’ve heard overblown claims for information technology for decades. However, I’ve also observed that eventually reality catches up with vision. Finance and secretarial departments are particularly resistant to change, yet because almost no corporations use adding machines or typewriters anymore, it’s clear that transformative change can happen.
Nonetheless, because users of industry computing systems are inundated with “it’s better than ever” promotions by vendors, journalists, and industry analysts may have grown jaded and unimpressed. In the case of ERP systems that help run many organizations that are too bad because we are finally at the point of a basic vary in this business-critical software category.
ERP systems themselves contain been undergoing alteration, enabled by the growing availability of technologies that can address the shortcomings of documented systems and an increasing appetite for multitenant, cloud-based ERP systems.
As I noted in my research program for the Office of Finance, the demographic shift taking place in the ranks of senior executives and managers from the baby-boom generation to those who grew up with computer technology will create demand for more capable software. ERP systems are evolving to deliver a better user skill, greater litheness, and agility, as well as an optimized mobile experience and lower total cost of ownership.
The transformation has already started for some vendors and to some degree. The pace of change will add to over the next two years as new releases become available. However, I don’t expect companies to buy a brand-new ERP system just to acquire next-generation features. Our Office of Finance benchmark investigates finds that on average companies replace their ERP systems only every 6.4 years, mainly since of the cost and difficulty of implementing the software.
Moreover, many of these capabilities will be available under maintenance contracts for on-premises systems and incorporated automatically in upgrades of cloud-based systems.
The new generation of ERP systems will be able to support a more effective approach to managing the functions I call continuous accounting that will benefit finance and accounting departments. By eliminating batch data processing and by supporting analytic as well as transactional operations in a unified system, the next generation of ERP systems will enable companies to provide executives and managers with instantaneous information, alerts, and guidance.
It will enable departments to spread workloads more evenly across months and quarters, rather than having to wait until the end of the period. In so doing, many companies will be able to accelerate their close, as I have discussed.
Continuous accounting can contribute to providing a strategic focus for the finance organization a change that organizations will welcome. In our research on finance innovation, nine out of 10 participants said that it’s important or very important for finance departments to take a strategic role in running their company.
In many respects, today’s ERP systems are exactly what people don’t want any more. They are notoriously time-consuming and expensive to set up, maintain and modify. In our ERP research, only 21 percent of larger companies said that implementing new capabilities in ERP systems is easy or very easy while one-third characterized it as difficult. For this and other reasons, the current generation of ERP software acts a barrier to innovation and improvement.
To be sure, more than any other type of enterprise software, ERP systems are a challenge because of the complexities of business organizations. This isn’t going to change. I’ve spent decades examining all sorts of businesses from multiple perspectives – from strategic, high-level business models to footnotes in financial statements and the execution of specific manufacturing and financial processes.
To the uninitiated, everything about business appears simple until they get into the details. Then, even when you strip out inessential elements, it’s still complicated. ERP is complicated because the underlying business requirements are complicated. For example, in any organization, there are competing demands and priorities at work when an ERP system is set up.
Although some aspects of ERP will always be complex and require experienced assistance to design and maintain, techniques for mass customization can make it easier to implement and change, thereby eliminating a significant portion of the cost of ownership. To be sure, software companies have tried to minimize deployment costs.
For a couple of decades, ERP vendors have offered packages aimed at specific industries such as aerospace and pharmaceuticals. Those addressing midsize companies, which have tighter budgets than large ones, offer out-of-the-box configurations aimed at even more specific types of business, such as steel service centers, manufacturing job shops or brewers.
For more broad businesses, today’s cloud-based ERP systems are one solution to the problem of costly updates and reconfiguration. However, this option still may not be attractive if an organization is in a business that has very specific customization requirements that more generic ERP systems cannot support well (for instance, process manufacturing industries such as specialty chemicals manufacturing).
One positive development in the ERP category is the increasing attention vendors have been paying to the user experience in the design of screens and workflows. The dull, cluttered and difficult-to-navigate interfaces that have been the norm up to now were the result of inexperience in design and constrained computing resources.
The next generation of ERP systems is being designed with decades of experience and far more powerful computing platforms and tools than the current ones. In the 1930s, Raymond Loewy and others revolutionized the design of everyday objects, from soda fountains to locomotives and automobiles so that form and role mutual to produce a better product.
Today, it’s even more important to apply basic concepts of industrial design and ergonomics to creating user interfaces. This goes beyond making old code bases pretty. Largely because of tablets and mobile computing platforms, people now work with multiple types of interfaces and use a wider range of methods and gestures to interact with their devices.
More generally I am convinced that the worst aspect of today’s ERP systems is that they inhibit change in corporations. The lack of adaptability in these systems has infused a “set it and forget it” mindset that inhibits companies from making necessary changes in processes and stifles innovation. The inability to make changes easily to an ERP system inhibits improvements in corporate functions that run on ERP.
This is ironic since one of the factors driving corporations to buy the first ERP systems in the 1990s was their desire to do business process re-engineering, a business strategy of the time. More useful is developing a culture of continuous process improvement, one of the pillars of continuous accounting, in the finance organization. Making ERP more easily configurable by business users supports continuous process improvement efforts.
As the business software market, including ERP, increasingly moves to the cloud, a major challenge facing software vendors is designing their applications for maximum reconfigurability. By this, I don’t mean contribution the capability to select modules from a menu, but enabling only moderately trained line-of-business users to make granular adjustments to process flow and data structures in a multitenant setting.
This lack of flexibility is an important barrier inhibiting adoption of cloud-based ERP. Although user organizations that are more able to adapt to an as-is version of an ERP system are more likely to take the cloud-based option, this covers only some of the potential market.
The cloud ERP vendors that offer greater flexibility in allowing individual customers to modify their implementation to suit their specific needs will have a competitive advantage. Multitenant cloud ERP vendors already have had to pay attention to reconfigurability, and on-premises ERP vendors also would benefit from enhancing the reconfigurability of their systems.
Today’s corporations have been willing to put up with the deficiencies in their ERP systems because everyone was in the same boat. That won’t be the case much longer. The cost and complexity of ERP systems have meant that IT departments, not business users, have had the fullest involvement in managing them.
This, too, will change. Business users and finance departments, in particular, will need to be involved in periodic assessments of how well their ERP system supports their responsibilities and objectives. Finance executives, in particular, should