Is This the End of Enterprise IT Systems?

Posted 2013-02-07

By Mark Willford

Large enterprise IT systems have long been the backbone of global companies and government agencies responsible for running critical operations such as manufacturing, finance, materials planning, warehousing, human resources, sales, procurement, analytics and customer service. But, with the advent of cloud, software as a service (SaaS) and related solutions that offer increasingly attractive options from a cost and flexibility perspective, are we quickly approaching a time when it will be a case of ERP, R.I.P.?

Not anytime soon.

Enterprise IT systems will continue to play a critical role both by making business processes more consistent and tailored to a company’s unique needs, and by ensuring more effective data security and integrity. This is not to say, however, that ERP systems have not and will not continue to evolve over time.

A hybrid model—with ERP at the core and cloud-based innovation and on-demand services at the edge—promises organizations the best of both worlds. Many companies will continue to pursue some form of ERP system implementation, while upgrading that system and adapting it to their needs, for three reasons:

1. A universal operating model

To serve customers effectively, run back-office functions efficiently and manage the business consistently, a company needs to have all parts of its disparate global organization on a “universal operating model.” This means operating on the same cost structure, for example, or recording profit and loss in the same way.

With a consistent operating model, companies can support business growth faster and more predictably. Ultimately, having enterprise systems with the same data fields, metrics and reporting mechanisms in place will help remove the uncertainty that often occurs during acquisitions. 

2. Simplification

As organizations look to standardize their operating model, they simultaneously seek to simplify their IT environment, especially their suite of enterprise applications. This enables the delivery of significant cost reductions because the business operates more efficiently with a “single version of the truth,” giving the company consistent, timely information from all its applications.

A major simplification and standardization program focused on a company’s global operations can improve operating efficiency and customer service by accessing a common base of information, reporting and analytics to support better planning, management and decision making.

3. Security, integration and data management

Managing data—the lifeblood of any organization—is becoming an increasingly difficult challenge. Cloud and SaaS solutions, if not properly integrated, offer the potential of a more chaotic, less reliable and less secure data environment. 

While companies may be comfortable with a limited set of customer data in the cloud, will they have concerns about also including financial or credit information? How will they deal with issues regarding compliance? For these reasons, on-premises ERP systems remain a viable, continuing part of the IT equation.

A Hybrid Model

A hybrid model allows an organization to take advantage of the benefits offered by the new solutions in terms of cost and flexibility, while preserving those of the traditional enterprise systems. 

One mobile technology provider, for example, is effectively combining its global ERP system with local systems in various geographies that support specific jurisdictional and national requirements, after deciding that it would be too expensive and take too long to extend its full ERP system into those locations. The company achieved the right balance between global consistency and local relevance by using a rapidly deployed, cost-efficient and agile on-demand system for business management and financial consolidation, and then ensuring the integration of its data and performance environment with its existing ERP backbone. 

This two-tier ERP implementation offers the organization closer control and governance by enabling the interoperability of the ultimate solution, while still giving different geographies and parts of the business the cost-effective flexibility needed to achieve their urgent goals. This includes having cloud providers offer pay-as-you-go access to ERP functionality.

Holding everything together becomes more complicated and exacting with the hybrid model. Where traditionally the CIO was in charge, this new hybrid IT environment presents a far more daunting challenge.

A business may have a core ERP system running simultaneously with a variety of cloud environments or services, along with a sprinkling of other legacy systems. These might be managed by both external vendors, including the ERP provider, and internal staff. Managing the end-to-end performance of this far-flung IT environment, with its complex array of moving parts, may be beyond the capacity of both the company using the IT services and its service providers. 

As a result, more companies are moving toward using an integrator to provide end-to-end visibility and service assurance. Integrators typically work either in a consulting capacity—helping the client create a managed umbrella over broader ERP and on-demand environments—or as a managed services provider that assumes responsibility for overseeing both the internal and external computing platforms. This includes taking on the associated risks and offering end-to-end service management capabilities.

Another important innovation has been the move toward industry accelerators for hybrid ERP/cloud solutions. Best practices in a particular industry can be identified and then used to accelerate an ERP implementation, as well as the other SaaS or cloud services that may be appropriate for an organization in a particular industry. 

An example of this was the approach taken by one of the world’s largest gold mining companies. As the company grew, it found that its existing business processes, systems and data had become fragmented and outdated. A new IT program that leveraged leading industry practices and templates from a natural resources-specific, preconfigured, vendor-provided solution made the company’s systems more efficient, improved visibility of operations, and gave its executives the data needed to design their business strategy and improve operational decisions. 

On-premises ERP systems will continue to play a vital role in the future, even as the broader IT environment becomes more modular and incorporates local varieties of business functions into the core system. Effective integration and management will remain the most important keys to success, and the challenge will be to put all the links together in a way that makes the solution both strong and flexible.

Mark Willford is the technology ecosystems and offerings lead at Accenture.