The enterprise resource planning (ERP) market certainly looks very different now compared with 10 years ago. Back in 2013, SAP and Oracle accounted for 38% of the ERP market between them, with the top 10 suppliers owning 64%, according to Gartner.
Red and Blue are still the two biggest players in the ERP space, but their overall share has decreased. By 2020, the top 10 ERP suppliers accounted for just 33%, according to Apps Run The World, while SAP and Oracle owned less than 15% between them.
As the market has shifted to one with more players, all taking smaller chunks of the pie, this has led to firms taking a more piecemeal approach to their ERP applications. This is a trend that has been ongoing for at least five or six years, according to Chris Pang, senior director analyst at Gartner. Whereas in the past, a lot of organisations tried to get as much as they could from one supplier out of one suite, now they are deliberately choosing a strategy of taking the best available from the various suppliers.
“It could be a best-in-class finance system with a best-in-class procurement system with a best-in-class HR solution,” he says. “Most ERP vendors have solid financial management capabilities, but when it comes to the HR side, then most have either very light capabilities or they partner with others.”
ERP’s shift away from being a two-horse race has had one big winner – the customer. As well as putting pressure on Oracle and SAP to continually improve their offerings and customer experience, ERP buyers now have a much wider choice of systems.
Vaibhav Vohra, chief product officer at Epicor, says: “Back then, it used to be a very closed ecosystem. It was almost like, here’s your firm’s architecture, you go and optimise it – and it came with potentially long implementation timelines.”
With the emergence of new, specialist ERP players such as Epicor, which targets the manufacturing and distribution sectors, firms are also being offered more tailored applications.
“If you think about the generalised platforms that SAP, Oracle or others have, essentially it’s the same platform for all 25 industry verticals and they don’t go sub-vertical,” said Vohra.
“The challenge there is that it becomes a generic platform for everything, which helps in many cases for large enterprises and the vanilla things they all need to be successful. But we drive the time to value down, so mid-market companies can get up and running fairly quickly. Then we can extend that into the innovation space, where it’s just very natural because we’re already in the deep workflows they have.”
A mixed bag of stuff
Most of ERP supplier Unit4’s customers still base their overall IT strategy around the core platform, which satisfies a certain percentage of what they need, according to Claus Jepsen, the firm’s CTO.
“Essentially, when you look at ERP, it’s a mixed bag of stuff,” he says. “It does everything sort of well, but it doesn’t excel. The excel piece is where the best of breed comes in. If the customer needs subscription billing, they can go and buy that as the best-of-breed solution and then add it to the IT landscape. That’s definitely happening more and more.”
However, having that core ERP base is vital to avoid huge integration challenges, he adds.
“If you do everything by best of breed, you are returning to a very chaotic situation,” says Jepsen. “You need tons of integrations and you may not be able to find all those as standard integrations, and then you as a customer end up having to do a lot of work.”
Claus Jepsen, Unit4
Even with a core ERP foundation in place, customers still face a challenge when choosing their best-of-breed additions because they may not be totally sure the underlying ERP platform supports that kind of plug-and-play well. Where ERP suppliers offer a more flexible and open system, there is a higher likelihood that their customers will take this approach.
“If you have a slightly more legacy system with less openness, you are forced back to the vendor, which is not always a good place to be,” says Jepsen.
The business world is now demanding a much more open and agile approach, which requires a demonstration of time to value as quickly as possible from technology products.
Vohra explains: “In this world, you may have three analytics solutions companies. Having the ability to have native applications, but then also connect with the ecosystem that they live in puts the enterprise at the centre, as opposed to the vendor.
Great customer experience
“A really great customer experience is where you meet them in their need, as opposed to driving your own scripted solution. It”s largely driven by the rise of citizen developers wanting to have what is best for the company, and industries intersecting more. Companies that were doing manufacturing are now doing manufacturing and distribution, and vice versa. It’s led to a much more flexible architecture and approach.”
Unit4’s Jepsen agrees that as more companies turn to citizen developers, this is leading to a need for more flexible ERP systems.
“They need the tools to start building tailored applications that fit their business specifically because they may have some requirements that we would never develop for them because it’s not enough mass,” he says.
“By having openness, the API [application programming interface], the extensibility, the integrability, you can then tell customers you can go use [Microsoft] Azure PowerApps or whatever other platforms to build these enterprise-specific applications. You don’t need hardcore computer science majors to do that.”
Vaibhav Vohra, Epicor
Although this shift from a single-supplier ERP suite to a mix-and-match approach allows firms to benefit from best-of-breed software-as-a-service (SaaS) products and support for citizen developers, it brings challenges around integration.
Unit4 has designed its ERP platform with this integration aspect in mind, with a solution that offers standard functionality and then leaves it open for customers to integrate more easily than was previously available for best-of-breed systems.
Jepsen says: “Something we are driving to is to build this ecosystem around providing microservices through an open API that is well-structured, documented and stable, so when customers decide to buy a best of breed and hook it up with our system, we guarantee that we don’t break the integrations.”
Gartner’s Pang says issues around integrating different data from different systems also need to be taken into account. For many large organisations, the notion of a single source of truth is the pinnacle of their ERP platform, one that is enabled by switching from separate applications and data silos to one centralised system.
“Each vendor would often have their own data taxonomy, so it’s not necessarily going to be one for when you’re trying to do a consolidation and overall reporting,” he says. “It does make things more challenging, which is why the topic of the integration is so important.”
This has led to the emergence of a new market dedicated to integration technology. Integration platform-as-a-service suppliers such as Jitterbit and MuleSoft – now owned by Salesforce – specialise in helping to glue together applications from different providers.
However, despite the integration aspect, many companies are still willing to take on this obstacle rather than rely on a single supplier for their ERP technology.
Pang adds: “This is because we’ve transitioned from IT buying to line-of-business buying. The decision used to be made by the CFO and the CIO, who would be choosing the system for the whole organisation. Today, the decision has become more devolved and the individual line-of-business owners have a greater say in what is the best solution for them.
“This is often accepted by the CIO and the CFO, because what you’re looking for is your teams to have an effective system to run the business. There is no point having a system which is perhaps architecturally perfect, but then doesn’t enable the different departments to get on with their day-to-day business in an efficient manner.”
The next generation of Unit4’s ERP platform, which the firm is starting to roll out to customers, is based around the premise of extensibility, configurability and ease of integration, driven by customers’ desire for greater flexibility. This requires a very modern platform built around a different mindset, with pressure on ERP suppliers to provide the infrastructure and the technology that lets customers enrich their IT landscape with the application they see as the best fit for their business.
Jepsen says: “If customers want to pick a different procurement, inventory or logistics system, then there is an expectation to vendors that they can actually integrate with these solutions. If we know what CRM [customer relationship management] or subscription billing system they use, depending on the vertical and the size of the customer, we can provide that as standard offerings at a subscription fee. It’s not something they have to go and build themself or involve some third-party consultant to construct for them.”
Potential acquisition targets
While the thirst for best-of-breed applications could make the current specialist players potential acquisition targets for larger suppliers, Jepsen doesn’t see this happening, because that would be a shift back to mega suites.
“People are buying more and more specialised solutions that fit their needs because they would like to be up and running as quickly as possible,” he says. “Let’s say that a big ERP company like ours then bought this best-of-breed vendor – I’m not sure we could be successful. I don’t think SAP and others can, as well, because we would need to turn it into something that’s more standard configurable.”
But Pang notes that large suppliers have not been shy about making acquisitions where they can see an opportunity to close gaps or defend their interest, and so there are likely to be more mergers and acquisitions in this space.
Views may differ over the prospect of more M&A activity in the market, but it is clear that the best-of-breed approach to ERP systems will be favoured by companies going forward. And with the rise of citizen developers and the support of integration specialists, this mix-and-match strategy should offer firms more flexibility and better performance from their core enterprise applications.