The End of the ERP Monolith

Esteemed management consultant, academic and author, Peter Drucker declared in the 1980s, “The most efficient way to produce anything is to bring together under one management as many as possible of the activities needed to turn out the product.”¹ Drucker’s declaration, taken literally, may seem simplistic, even quaint in the context of today’s highly complex, competitive, and global business environment. However, if one considers the meaning of “one management” in a broader context, Drucker’s words are relevant and even prescient to manufacturers.

Properly implemented, modern business systems provide a consistent and reliable means of transacting business in the manner prescribed by an organization’s management. Effectively, it is the business system’s configuration that codifies Drucker’s “one management” paradigm. If this paradigm is actively adopted and considered when selecting and configuring the business system, managers should expect significantly improved production efficiencies and decision-making capabilities.

The prevalence of the single solution business system or Enterprise Resource Planning (ERP) systems of the late 1990s and early 2000s directly supported the “one management” concept. The promise of one system and one version of the truth was finally possible for those select organizations that could afford the high cost of such software and that were capable of successfully implementing change within their organizations.

Once ERP gained wide adoption, large manufacturing organizations had the greatest incentives to invest heavily in software. During the heyday of ERP adoption, many large-scale system deployments, such as SAP and Oracle applications, far too often ended poorly and in very public ways. The root cause of many of these unsuccessful deployments was management’s misunderstanding of the risks associated with large scale business change.

Managers mistakenly considered business continuity as the top risk for an ERP implementation project. In reality, it was the resistance and inability to manage organizational change that spelled doom for some early adopters, not the risk of the underlying technology itself.

Fortunately, the construct of a single solution ERP monolith has waned in the last decade. Today’s manufacturers often have an assortment of targeted software offerings from which to choose. Producers of all types of goods serving diverse sales channels now have business system options to cater to their industry-specific needs.

Although modern business systems offer targeted solutions for specialized industry segments, they all work pretty much the same under the hood. The proliferation of highly modular, cloud-based platforms, with variably priced software licensing models like Acumatica, NetSuite, and Salesforce, have been embraced by companies both large and small. These modern systems offer a modular approach to ERP and are built using common software frameworks that provide a high degree of interoperability among cohort systems.

So, the logical question is, if most systems are the same under the hood, how do publishers cater to specialized industry segments? The short answer is that modern software development methods and toolsets have evolved with breakneck speed over the past decade driven by the demand for web-based software that can be accessed anywhere, anytime, on any device. Most of this development innovation was pioneered by tech giants like Facebook, Google, and Microsoft. Rather than keeping their innovations proprietary, these companies distributed their new toolsets and development platforms freely to the open-source community. As a result, most business system software publishers rebuilt the front end of their platforms from the ground up using these new, highly flexible software development frameworks and open-source software libraries.

Today’s integrated business systems provide for the vastly improved empirical measurement of discrete business activities. As such, executives and managers can implement synergistic incentive compensation plans tied to key performance indicators (KPI’s) across the organization. As a result, significant value is unlocked through increased efficiency across the value-chain, improved ability to quickly pivot in response to changing business conditions, better linkage between Sales and Operations, higher quality products, and most importantly, delighted customers. The path to optimal business system integration is fraught with risk, however. Generally, software implementations fail not because of technology but because of management. Careful analysis of business systems gone wrong often finds that the managers of today did not learn the lessons of the past.

The plethora of affordable and flexible modern enterprise business software options specifically targeted to manufacturers of everything from circuit boards to ice cream should make it difficult for owners and managers not to prioritize software investments. However, our observation is that most small to medium-sized manufacturers are still using desktop applications or highly customized (and unsupported) legacy systems to manage their businesses.

Are these organizations overly risk-averse or unwilling to embrace change? Most often the decision not to embrace modern software and manufacturing methods is an act of omission, not commission; managers are reluctant to consider technology as a core element in their strategic planning process. Established manufacturers with a loyal customer base often operate their businesses in reactive mode and think little of margin compression over time and customer-centric product innovation. For these manufacturers, strategic thinking usually amounts to buying low, selling high, and keeping the lights on, with the latter proving the most difficult over the long term.

Today’s global, hyper-competitive, and ultra-connected business environment demands more than ever from the going concern. Manufacturers, in particular, must deal with threats on multiple fronts to avoid product commoditization and decreased profitability over time. Organizations that commit to a modern business system and the industry best practices it is designed to support are best positioned for success, and dominance in the marketplace.

Let Marcum Technology help you navigate the path forward. Our manufacturing industry and business systems expertise will help you manage the inherent risk of business change and implement the best software solution(s) to meet your business needs of today and tomorrow.

Source

1. A Functioning Society: Community, Society, and Polity in the Twentieth Century (ed. Transaction Publishers, 2011) – ISBN: 9781412814119