There was a time when the major ERP providers were considered allies of the CIO. They were trusted advisors. From an IT decision-maker perspective, ERP software aimed to encapsulate best-in-class business processes in a single package.
In theory, different enterprise packages from the same ERP company would be able share data; the packages would be pre-integrated and, as for master data management, the customer would have a single version of the truth.
The technique of bundling “free” or discounted enterprise software as part of a sales pitch, meant that organisations were often enticed to buy more products from the same ERP company. On paper, at least, it made sense to invest in a single supplier for core enterprise systems.
Drawbacks of having a single source for ERP
But there are many drawbacks. Organisations standardising on a single ERP provider’s software stack are often relentlessly pursued by account teams at these companies to buy more and more stuff.
These days, that stuff tends to be cloud offerings.
As Computer Weekly has previously reported, Oracle executives referred to “cloud services“ six times in the transcript of the 45-minute, third-quarter 2019 earnings call in March, posted on the Seeking Alpha financial blogging site. Similarly, SAP executives made three long statements regarding “as-a-service” in their fourth-quarter 2018 earnings call in January 2019, according to the transcript on Seeking Alpha.
SaaS increases ERP choice
KBV research’s Global Software as a Service (SaaS) Market, report has forecast that the SaaS market is expected to attain a market size of $185.8 billion by 2024, growing over 21% a year. The ERP providers have spent the last few years fleshing out their SaaS strategies through strategic acquisitions and building out cloud-based ERP software. However, they are no longer the only options available to the CIO. While ERP tends to be able to run a large chunk of a company’s business processes there may be gaps and missing functionality. In the past, so-called “point solutions” filled these gaps. In the era of SaaS, the cloud has enabled companies like Salesforce and WorkDay to establish themselves as dominant players. Often, these SaaS products are best in class.
Multi-sourcing is the future of ERP
It used to be the case that the bulk of enterprise software spending usually went to a single ERP provider. Today, savvy IT decision makers are building out enterprise SaaS portfolios, with products and services from multiple SaaS providers.
Such a strategy breaks the grip the traditional ERP providers have had with their customers. The traditional ERP companies are set up to offer the CIO a one-stop-shop for enterprise software. But businesses no longer standardise solely on a SAP or Oracle suite of products to meet their enterprise software requirements. As a consequence, the traditional ERP providers have gone shopping for smaller SaaS firms, in an attempt to sell what they would consider “a complete solution”, that they can then claim meets all the requirements a customer needs from enterprise software.
Such is the nature of innovation in the software industry that someone is bound to invent something new and original, which subsequently gains traction. Clearly, it is not going to be particularly realistic for the major ERP providers to buy every SaaS business that has an offering which fills a gap in their product portfolios.
Make integration a key requirement
When shopping for enterprise software, Forrester principal analyst, Duncan Jones, believes IT buyers need to put integration with open APIs, high on their list of priorities. Businesses are told to reduce their reliance on custom code in ERP implementation. This should also apply to the customisations required to integrate the ERP with a third-party product.
If open APIs are made available, third party SaaS companies can create pre-integrated products that fill in the gaps in functionality that exists in the product portfolios from the traditional ERP providers. Assuming the enterprise SaaS landscape becomes more and more fragmented, IT buyers should expect enterprise software companies to provide greater and greater support for integration with third party SaaS products. For the traditional ERP providers, this is likely to be both cost effective and strategically more sustainable long-term, than attempting to acquire every SaaS startup that has an interesting product.