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Is ERP Dead? Or Has It Just Gone Underground?

by Joshua Greenbaum

August 11, 2009

ERP may no longer be a strategic differentiator, but rumors of its death have been greatly exaggerated.

In late 2002 — practically a millennium ago in enterprise-software years — a top executive at a then-leading vendor opined that ERP was a “has-been” technology. “The real story,” this executive was quoted as saying, “is that ERP has been dead, is still dead, and will be dead for the next five years.”

The quote was a rare and delicious combination of prescience and irony. Today, five years later, ERP looks even more dead to some observers than it did in 2002, although in reality it’s not dead at all. And the man making the claim worked for Siebel Systems (now part of Oracle Corp.), a vendor that is truly dead in a customer relationship management (CRM) market that’s also looking a little long in the tooth.

The fact that CRM is showing its age says a lot about the state of the computer industry overall. Indeed, things haven’t been too hot as of late for product lifecycle management (PLM), supply chain management (SCM), or supplier relationship management (SRM) either. In many ways, what are dying are the standard three-letter acronyms (TLAs) that were synonymous with high growth and high value five years ago.

No Longer a Strategic Differentiator

The situation was hardly as grim in 2002 as our friend from Siebel Systems would have led us to believe. The reasons he gave for the death of ERP then were that most customers already had an ERP system and that the market had become a replacement/upgrade market. It wasn’t true then, and it isn’t true now. Take a look at the midsized enterprise market that SAP and its competitors are currently targeting, and you’ll see a major market waiting to be served by the latest and greatest in ERP, among other things.

But as 2007 starts to wind down, it’s clear that, whether the market is saturated or not, ERP as a competitive differentiator for SAP, or any other enterprise-software vendor, is starting to lose its luster. Some of this change in perception is due to the inevitable commoditization of ERP functionality. When everyone is running basically the same core ERP processes, those processes by themselves cease to be strategic differentiators, and the market’s quick plunge toward commoditization begins.

Commoditization, however, is only one of the reasons ERP is disappearing from the strategic horizon. The other reason is more significant: An increasing number of core functions — the things that companies do to stay competitive within their markets — are not found in a traditional ERP system. While ERP is there to keep the lights on, the appealing functions that bring the customer into the store — and back again for a second and third visit — exceed ERP’s basic functionality more and more.

Indeed, that’s the same dynamic that threatens the rest of the TLA crowd: Everyone seems to have bought basic CRM, PLM, SCM, and SRM functionality already. While lots of customers clearly haven’t bought all of these applications yet, most of those waiting on the sidelines will acquire them just to get their companies to a baseline level of industry best practices. As a result the next level of competitiveness for their organizations will have to come from somewhere else.

The Phoenix Rises

Therein, we find the phoenix waiting to rise from the ashes of ERP. That “somewhere else” — the mythical “white spaces” that every enterprise-software vendor wants to fill with its “must-have” product — is becoming the new battleground for enterprise software in the twenty-first century. And SAP is working hard to fill those spaces, both organically and with its partners’ products.

Some of these emerging white spaces fall under new TLAs such as GRC (governance, risk, and compliance) where SAP is leading the market. Others come from obscure places such as shop floor to ERP integration, where manufacturing execution systems (MES) and supervisory control and data acquisition (SCADA) are blending with ERP to create new strategic processes and value.

This is another area where SAP is working to assert a leadership position. It’s the market focus behind SAP’s acquisition of Lighthammer in 2005 (home of the SAP xApp Manufacturing Integration and Intelligence (SAP xMII) composite application) and its more recent reseller agreement with Visiprise (for SAP Manufacturing Execution by Visiprise), which will help to fill a huge white space in manufacturing that goes from the shop floor to the top floor and all the way to the executive suite.

Another place to look for white-space filler is in the area of financial management, particularly with respect to making the business safe for the CFO. What has become increasingly obvious is that relatively little of what core ERP financials do touches the CFO directly: ERP financials are less about meeting the strategic needs of C-level executives and more about fulfilling practical bookkeeping and reporting requirements.

The solution is to find more functionality, in the form of corporate performance management (CPM), and use that as a lead-in to a strategic sale to the CFO. Hence, last April SAP acquired performance-management vendor OutlookSoft (getting the CPM solutions for CFOs).

Another white-space filler comes in the form of Duet, the much-heralded Microsoft Office interface to SAP’s core ERP system. Duet does not create new net functionality; the white space that it fills is the need to extend ERP functionality to a greater number of users by offering them an alternative interface, namely Office, that simplifies user access and lowers overall acquisition costs.

Alive and Kicking

ERP may seem to be strategically dead, but functionally it’s very much alive and kicking, albeit in a much less glamorous way. The key thing to bear in mind about all these post-ERP offerings is that they would be absolutely worthless without the ERP data that informs the key parts of the business processes that these new applications are addressing.

End users may never see an ERP screen and CIOs may try to outsource parts of the ERP stack to get those functions out of their hair, but running a modern enterprise without strategic ERP data and processes is like trying to drive a car without an engine: It can’t be done, no matter how stylish the chassis may be.

This situation leaves SAP at a major crossroads for the next five years or so. The company best known for its leading ERP software now must become known for what it does outside the ERP space. All this must be accomplished without “killing” ERP by dismissing, as our errant Siebel executive once did, the strategic value that ERP continues to impart to the enterprise.

Reports of ERP’s death aren’t just exaggeration; they’re as false now as they were in 2002. And they’ll remain false for a long time to come.

Joshua Greenbaum is a market research analyst and consultant specializing in the intersection of enterprise applications and e-business. Greenbaum has more than 15 years of experience in the industry as a computer programmer, systems analyst, author, and consultant. Before starting his own firm, Enterprise Applications Consulting (, he was the founding director of the Packaged Software Strategies Service for Hurwitz Group. You can reach him at

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