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Cutting the ERP Cord

Updated: Dec 22, 2019

The vertically-integrated cord-to-content model for television viewing is on a multi-year path of unbundling, as customers increasingly “cut the cord” and go straight to sources of content. "Content is king" is a mantra in the entertainment business, as all players try to improve the quality of their content offerings, and in many cases create their own content to avoid being disintermediated. Likewise, traditional content providers are racing to offer direct access, bypassing the bundled platforms to which they were historically tethered.

A similar dynamic is playing out in the world of enterprise business applications. The ERP system has long been thought to be the center of the universe, and as in Rome, all roads lead through it. Or, at least that was the idea when companies started implementing ERP systems thirty years ago. The thinking was that the ERP system would be the gold source for all data, and as such, would act as the data router for all applications that add value to the business. The idea was that ERP would simplify and commonize, making sense of the complex mosaic of business applications that existed in almost every company. This led to value-add applications becoming tethered to the ERP system. To this day, companies looking to purchase value-add solutions such as SCM software use ERP integration as an important criterion in their evaluations.

Jurassic Park for Data

Unfortunately, just like the fences that were supposed to hold the dinosaurs in Jurassic Park, it turns out that putting a fence around all the data is difficult, and subject to effects of chaos theory (I realize the explanation of chaos theory in the movie is not really accurate, but I think you get the point). Now, after billions of dollars of investment by companies around the world, it turns out that no one can really get all the dinosaurs into the park, let alone keep them there. ERP was intended to create order from chaos. In many areas, notably finance and HR, it did, but in creating order, it also created a fair amount of chaos itself. Jurassic ERP turned out to be a noble, but futile idea.

The idea of ERP as the gold source for all data never really worked from the very beginning. Certainly, it did add a lot of value by capturing, storing, maintaining, and serving as the single source for static enterprise data that could then be used by multiple departments and multiple value-add applications. But, as anyone who has implemented SCM software of all flavors can tell you, there is “orphan” data everywhere – in legacy systems, commercial software, and of course in the universal enterprise planning and analytics tool – Excel. These dinosaurs never made it into the park.

ERP as the King of Content

The other key thesis behind the ERP era was that if you house the data, then naturally you will house the applications that use the data. This was the enterprise computer systems thinking of the 1970s and 1980s, when applications and data were monolithically connected. Thus, ERP bundled the data with the mechanisms for delivering business content against the data – namely enterprise applications. And so it went, like a domino effect – human resources, finance and accounting, sales and distribution, material management, production planning, and so on, found their way inside the Jurassic fence. At last, CIOs thought, we have commonized our business processes and systems and we now have control over the business.

Control is an Illusion

And then something strange happened. It turns out that control in this context is elusive and subject to the vagaries of variability where small changes in inputs can dramatically affect changes in outputs; this is true even for the simplest of systems, let alone complex business systems. ERP provided the illusion of control, but not control itself.

In short, innovation happened. It turns out that the ERP control model is not conducive to innovation, at least not at the pace necessary to create business differentiation. Innovation in the form of applications happened all around the ERP system. The Jurassic park managers kept holding on to the edict that everything needs to be inside the fence so that control and order can be maintained. To this day, there is a guilty-until-proven-innocent mentality that forces innovators to prove that their innovation does not need to be inside the fence.

But the ERP system still had one trump card – in order to deliver the innovation, you still had to tunnel inside the fence to get the data housed by ERP.

Now that fence is gone. There is more data outside the Jurassic ERP fence than there is inside, making ERP just another source of data. While it still houses the gold source for a lot of static enterprise data, it can hardly be viewed as the center of a planetary solar system for applications, as it once was.

In the past ten years, we have new data sources emanating from everywhere. For example, billions of real-time location and status signals from IOT devices need to be processed quickly in order to provide the decision-making precision necessary for today’s supply chains. Driving these data through an ERP system and then using that as the router for value-add applications not only makes no sense, but it is also beyond the fencing capability of historical ERP. It is way past the time to stop asking why all things cannot be inside the Jurassic ERP fence. Those days are gone. Innovation will happen, even if it is slowed down by the illusion of control. Those that understand this will move faster and thus gain competitive advantage sooner.

It’s time to officially cut the cord and look at ERP as just another system in a constellation of enterprise systems that house data.

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