It’s hard to believe now but there was a time when ERP was hot. In the 1990s, with the prospect of the Y2K bug hurrying them along, companies went the whole hog, replacing aging back-office systems with new enterprise resource planning (ERP) suites that were intended to create a one-stop shop for payroll, invoicing, HR, logistics, supply chains, general ledger and more. Just as Oracle had risen on the back of database sales and Siebel on CRM, SAP became the go-to ERP provider, garnering billions and billions of Dollars, Marks and Pounds in the process.
For over 10 years, this was all fine (if very expensive), as companies had processes set in stone. But, the walls of ERP are crumbling. In the new Subscription Economy where services are being consumed on a pay-as-you-go basis the ERP model is dead.
The ERP premise was enticing: join up all your disparate engine-room components to have an integrated, holistic view of operations. Today, more than a decade after the golden age of ERP, companies are faced with a different ERP challenge: adapting systems for a new economy where flexibility is critical to business competitiveness and where people are moving to subscriptions rather than up-front purchases.
Take the media sector where big publishing houses have been forced by the internet to reboot their strategies and stem the flow of red ink. That change has seen media companies like Pearson, the Wall Street Journal, the Financial Times and even the BBC move to pay-walls and a range of subscription models covering both print and online bundles.
Or look at the telecoms sector where former state incumbents like BT, France Telecom and Deutsche Telekom are fighting for their lives against new players that can move quickly. The old telcos need to be able to offer more than voice minutes and have to deliver other services such as internet access, TV-on-demand, mobile tariffs, unique content, concert ticket promotions and other deals that make them stand out. Quite clearly, the old model of line rental and itemised call charges won’t cut it for this new world. The telcos need to be as nimble as the upstarts seeking to usurp them, which means billing systems that can be adapted on the fly. But billing systems from Amdocs built for a less changeable world just can’t offer the flexibility to deal with this.
Or look to IT where suppliers like Microsoft, SAP and Oracle find themselves on the cusp of a shift between client/server and cloud computing. Here, the world of upfront licence charges and an annual maintenance tax is seen as a licence to print money for precious little innovation in return. What’s needed is the ability to charge by usage, per-month or any other number of ways that appeal to buyers. Once again, the old back-office models of billing and process change are no good.
ERP was a category of software of its time but for many organisations that time has gone. In a world of constant price changes, offers and counter-offers, timed promotions, upselling and cross-selling and constant challenges to brand loyalty ERP is as dated as one of Mrs T's hairdos. It’s time for a new approach to back-office systems that are designed to accept change as a constant. Software built for a single purpose is dying and in its place are services that are immediately adaptable to a complex, unpredictable world.
In the Subscription Economy, newspapers like The Times and the Financial Times are reinventing themselves as hybrid digital-and-print brands, cloud services like salesforce.com are preferred to on-premise software, movie streaming services like LoveFilm and Netflix are seeing off high-street DVD rental stores, and car-sharing clubs like Zipcar are emerging as viable alternatives to owning vehicles outright. You could go even further and look at other business phenomena such as London’s ‘Boris bikes’ cycle-hire scheme, party clothes hire firms like Girl Meets Dress, farmers that send in-season vegetables to your door every month, even dog rental sites like Flex Petz, or cosmetics trial delivery service Glossy Box. All of them have figured out that there’s a market for people who prefer subscription to ownership.
In this context, ERP looks stone-age. In the Subscription Economy we need flexible systems that can be quickly reconfigured and embrace change rather than fight it with every hard-coded byte in their DNA. Put a fork In ERP – it’s dead.
Tien Tzuo is CEO and founder of subscription billing provider Zuora. Previously he was employee number 11 at salesforce.com where he served as chief marketing officer and chief strategy officer.
This was first published in August 2012