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Organisations are reinvesting in enterprise resource planning (ERP) systems once again as they emerge from the throes of the pandemic, with the global ERP market expected to more than double between 2019 and 2026, according to industry estimates. In Asia-Pacific, a TechTarget/Computer Weekly study revealed that ERP was at the top of the priority list of backend applications that organisations are looking to spend more on this year.
“ERP has come to the forefront during the pandemic where organisations that previously weren’t very interested in ERP have come to rely more heavily on the functionalities of ERP to counter some of the challenges that the pandemic brought up,” said Neha Ralhan, senior principal analyst for ERP strategy at Gartner.
During the pandemic, many organisations faced disruptions in their supply chains that led many CEOs and chief financial officers (CFOs) to cast a critical eye over their global ecosystem.
“CFOs are considering options that include onshoring or nearshoring to reduce costs,” said Steven Skinner, senior director for ERP applications at Oracle Japan and Asia-Pacific. “They are also seeking to accelerate their investments in automation to increase traceability and transparency across supply chains. Organisations that have experienced production and supply disruptions see an opportunity to de-risk and diversify.”
Another challenge was liquidity. Soon after the pandemic hit, liquidity and cash flow became paramount, with many organisations focused on diversifying financing options, said Skinner.
“Organisations with strong balance sheets raised capital to execute on acquisition targets and accelerate merger and acquisition strategies,” he added. “Many organisations looked to reduce costs like their real estate footprints. Focus and investments in continuous planning, scenario planning and modelling applications became essential and the new norm.”
Amid the pandemic, organisations across the region have also been championing new revenue streams through investments in innovation and new business models, such as e-commerce. “As new ways of working emerge, and the anticipated huge growth in e-commerce, there is an urgent need for next-generation ERP to drive process improvement and reimagine business models,” said Cynthia Quah, vice-president and head of cloud at SAP Southeast Asia.
The 3 Rs
Against this backdrop, Ralhan said organisations are approaching ERP investments along the lines of “renewing, reconfiguring and rationalising – the three Rs – as opposed to rebuilding”.
She noted that CIOs and application leaders did a lot of heavy lifting in the past few years to renew their ERP investments, in the form of brand new systems or migrating applications to cloud.
“A cloud-focused model allows organisations to change course a bit easier,” she said. “It works for current state, but also allows flexibility for what’s moving forward because a lot of organisations have possibly seen a change in their core functions in the past two and a half years.”
Cloud migrations in the ERP space have picked up pace, with major suppliers like Oracle and SAP bullish about their cloud business. SAP, for one, is confident that more of its customers will adopt its next-generation S/4 Hana ERP software and the Rise with SAP cloud transformation programme this year.
“The truth is that the adoption of cloud technology is crucial for companies to successfully innovate,” said Quah. “It not only transforms and upgrades business processes but also opens up an avenue for brand new business opportunities.
“This is especially so during a pandemic, where remote working is required at a huge scale, and critical services across the country need to be provided to citizens in a safe and efficient way.”
Customisation vs configuration
For many organisations, ERP systems are often customised to suit their needs, which can hamper their ability to become more agile in supporting new business requirements, such as delivering new customer experiences.
Gartner's Ralhan said organisations often don’t get what they want from ERP customisations, noting that the customisations are often time consuming and expensive to implement, with outcomes rarely meeting initial expectations.
“With the new suites of ERP and more niche players in the market, there isn't that much need to customise. It’s more about configuring, and organisations that are able to configure together with their service partners are in a much better position.
“It allows not only for a better experience now, but also if later down the track you’d like to decommission some aspect of your ERP, it allows for that with greater ease.”
Take healthcare services, for example. When the pandemic hit, healthcare providers had to handle the surge of Covid-19 patients and delay elective surgeries which affected their revenue streams, said Soma Somasundaram, Infor’s chief technology officer and president of products.
“Healthcare probably suffered the most with software projects being put on hold, but now people are starting to see that they are able to lift their heads up,” he added. “It’s not that the pandemic is over, but at least people know how to cope with it and we’re seeing a surge in that vertical.”
Other industries where ERP investments have seen an uptick include process manufacturing and food and beverage, where companies took advantage of the economic downturn to upgrade their systems, said Somasundaram.
Infor’s global cloud business grew by over 20% year-on-year in 2021 despite taking a hit from the healthcare sector. But overall, Somasundaram expects the growth momentum to continue as the people who implemented ERP systems decades ago are now on the verge of retirement.
“You hire people out of school and there’s a fear that they don’t understand those technologies, so I think the shift to cloud is only going to accelerate,” he added.
Besides rationalising their ERP investments to get more “bang for buck”, Gartner’s Ralhan observed that more companies are reconfiguring their systems with a focus on functionalities that might not have been a priority before.
But rather than re-implement an entire ERP suite, which takes a huge amount of time and resources, Ralhan said organisations might focus on specific functionalities through composable ERP, which breaks up monolithic ERP systems into loosely coupled applications.
“Composable ERP allows organisations to renew their ERP efforts rather than rebuild a monolithic ERP from scratch,” she said. “A more mature understanding of ERP and achieving scalability and agility are among reasons why composable ERP has become a popular strategy for organisations.”
In terms of future-proofing, Ralhan said composable ERP also enables organisations to maintain the status quo for some functionalities by using third-party support while evolving other capabilities. “That wasn’t possible historically with monolithic ERP,” she said.
Infor has been a proponent of composable ERP, providing industry-specific ERP components rather than placing everything into a single monolithic stack, Somasundaram said.
“Customers want to take the journey one step at a time without causing disruption to their user base and to mitigate risk,” he said. “No one’s got the perfect answer, but we at least thought about that and built our architecture in such a way through Infor OS”.
Read more about ERP in APAC
- Mid-market ERP software provider Unit4 is ramping up its investments in APAC, starting a new R&D centre in Jakarta.
- Vallen Asia’s cloud ERP system has enabled it to scale its operations across the region and made its supply chain operations more resilient amid the pandemic.
- Microsoft dives deeper into its industry cloud strategy and what it means for enterprises in the Asia-Pacific region.
- A majority of large enterprises in Australia, New Zealand, Hong Kong and Singapore are planning to move their financial applications to the cloud.
Somasundaram said Infor OS serves a backbone that lets organisations federate different ERP components that could sit in the cloud, on premise or on a third-party cloud service like Salesforce.com.
“Bringing components together through an open architecture lets customers take the journey the way they want. Not everything is possible, but within reason, that level of flexibility is what customers definitely appreciate.”
SAP has taken a similar approach towards composable ERP through a modular architecture that lets organisations combine and adapt various business processes. Its efforts, including a proof-of-concept platform for modular processes that addresses the integration challenges of a composable enterprise, are still a work-in-progress.
Meanwhile, Quah said most organisations “prefer having an integrated ERP as they are realising the benefit of the power of one, in comparison to a best-of-breed approach given the volatile business environment and heightened customer expectations”.
Oracle’s Fusion Cloud applications are also modular, and users can choose which modules they want to use.
“Our integrated, yet modular architecture allows customers to deploy what they need, when they need it,” said Skinner. “They control the pace and define which areas of their business is addressed first, like modernising their financials, supporting company-wide planning, or improving their logistics.”
The rise of industry clouds
ERP systems have traditionally been industry-specific, with offerings catered to business processes in industries from manufacturing and healthcare to automotive and logistics. These are increasingly being offered through the cloud.
In 2020, SAP unveiled its Industry Cloud, an open business process and technology platform with an application programming interface framework that provides access to capabilities in SAP’s core business applications, such as S/4 Hana.
With Industry Cloud, SAP is looking to support business processes that are unique to each industry – for example, creating intelligent stores in the retail sector.
“The store experience will be entirely different in the future, and we want to help to integrate the right technology into the new intelligent store,” said Thomas Saueressig, SAP’s board member and head of product engineering, at the time.
Gartner’s Ralhan noted that historically, the APAC region has always looked towards industry specific capabilities and the uptake of industry clouds, mostly by larger companies, has compounded this trend.
Midsized organisations, however, tend to have a stronger preference for composable and next-generation ERP, she said.
“They are saying this is the functionality we need and if we can get it through an industry cloud, that’s great, but it’s not problem if we can’t as there are some great solutions that would work for our organisation. So, industry specific clouds, especially in the APAC region, are more for the big end of town.”
Given the huge undertaking in implementing and enhancing ERP systems, it is difficult for most organisations to switch suppliers, especially if their systems are heavily customised rather than configured. But Ralhan said more are doing so for a number of reasons.
“It could be about cost or functionality where the incumbent doesn’t meet the needs of the organisation,” she said. “We’re also seeing, especially in the APAC region, multinationals in different regions with different requirements and therefore different vendors come into the picture.”
Ralhan noted that organisations that are taking the composable approach in a big way aren’t as wedded to legacy systems as before, which demonstrates their growing maturity in ERP implementations.
“We’re definitely seeing a more mature ERP market in APAC and that’s good as application leaders and CIOs are more empowered to go for the solution that best works for their organisation.”