Renowned physicist Stephen Hawking once wrote, “Intelligence is the ability to adapt to change.” The premise is reasonable enough. But what if it’s your business that’s facing a change — and your company’s technology infrastructure is restricting your ability to adapt?
Indeed, there are all kinds of legacy technologies that can prevent companies from adapting to new challenges. But this problem is especially evident when it comes to enterprise resource planning (ERP) software.
A Brief History of… ERP
The analyst firm Gartner first coined the term enterprise resource planning (ERP) in the 1990s to describe a system that served as the intersection for all of a company’s business processes. By linking these processes together, each ERP provided a consistent source of information — often financial data — enabling better visibility, analysis and decision-making. ERPs were inherently complex and like all systems of that era, they were delivered on premises: each company had to own and maintain the infrastructure on which its ERP ran. ERP was an invaluable tool once configured and implemented, but agility was not among companies’ priorities for ERP at the time.
The Evolution of ERP
As businesses grew more complex, interrelated and fluid, they developed new competitive and operational requirements. An ERP had to accommodate inputs beyond just financial data; it had to track data and processes in functions as diverse as warehouse management, supply chain operations and procurement,and more.
In fact, the industry resource ERP Focus recently released a list of over 70 elements a potential buyer should consider in a new ERP solution. That broad range of both expectations and potential functions has led to powerful cloud ERP technologies today; but at the same time, it has created serious challenges for organizations. Key questions arise, such as: 'Which problem should we solve first?', 'What happens when our parameters change?' and 'How can we adjust?', among others.
The Shift to Cloud and the Advent of Modular ERP
Two changes have occurred in the last 10 years that help address the challenges of an increasingly complex business world, and the systems we use to manage it. The first is the shift to the cloud, which allowed for the development of cloud ERP. The emergence of cloud ERP also contributed to the second, more recent shift: the development of modular ERP.
The Cloud ERP Revolution
As with other cloud-based business applications, cloud ERP means organizations can leverage the intrinsic business value of software without buying and maintaining a costly on-premises data center. This approach makes a cloud ERP provider's operation of a data center more cost-effective as well, since the provider can maximize the value of the data center through multiple paying clients.
But there is an even more profound advantage cloud ERP offers companies: agility. Unlike the monolithic ERPs of the past, cloud ERP provides companies with flexibility in the types of business applications they use. Think of an app store on your smart phone: downloading a single app to address a specific personal need is now common. On the other hand, buying a whole new phone for the same purpose is excessive, maybe even foolish. Cloud ERP presents a similar opportunity for companies, on the scale of enterprise technology.
The Modular ERP Transformation
The transformation of cloud ERP to modular cloud ERP means companies get even more agility and flexibility in the cloud. Each modular ERP system features multiple components — or "modules" — designed to be implemented in stages. Each module has its own purpose and is built to integrate with other modules; but critically, each module can serve its purpose as its own, standalone solution. (The consulting firm ERP Research provides a good definition of modular ERP here.)
We can visualize a modular ERP system as a Lego® set. Each piece or combination of pieces can be used for its own unique purpose, before the set is entirely put together. But each piece is designed to work in conjunction with other pieces in the partially or fully assembled set.
This development has had several positive impacts. Organizations can now tackle business problems in an iterative, manageable and cost-effective way. Challenges with inventory management? Add an inventory management module to your ERP. Changes in your supply chain strategy? Adopt a new supply change module without disrupting your other modules.
Tackling Complexity, One Module at a Time
Today’s business environment will only become more complex. For example, over 55% percent of organizations say the pandemic permanently changed how they view business strategy, the MIT Sloan School of Business reports. Fortunately, modular ERPs are purpose-built to address our dynamic environment, while still delivering the comprehensive business value traditional enterprise resource planning (ERP) has provided.
In my next blog, I will break down both the benefits and the challenges a modular cloud ERP can provide. I’m looking forward to sharing with you again soon.
