The Perils of Point Solutions in the World of Postmodern ERP
Back in the late ‘90s and early 2000s, ERP systems ruled the enterprise technology landscape. The thinking then was that megasuites offered by ERP vendors would extend beyond manufacturing and financials, and eventually tie together all of a company’s business processes.
As technology has evolved and we’re shifting toward the cloud, what we’re seeing now is that ERP systems work well for complex, customized manufacturing processes, and as financial systems of record. But for standard business processes, purpose-built SaaS tools are proving to be a better solution.
Processes for human capital management (HCM), customer relationship management (CRM), and managing indirect spending, to name a few, look mostly the same in every company. SaaS solutions to address these processes end-to-end can be deployed relatively quickly, and configured to work across all sides of organizations globally, and in any industry.
The trend now is what Gartner refers to as Postmodern ERP--companies assembling their own “megasuite” with ERP at the core and integrations with their choice best of breed, SaaS and other tools to fit the needs of their business.
Mind the niche
However, as companies go down this path, they have to be careful not to go too far into individual niche products, or they risk creating new complications and shortchanging themselves on opportunity to optimize whatever process it is they’re addressing.
There’s a case to be made for point solutions, but I think the case for specialized, “mini-suites” if you will, is stronger. You should look first to see if there’s solution on one platform that gives you end to end capabilities.
For example, customer relationship management in Salesforce is soup to nuts, from prospecting to the sales cycle to the closeout of the business and even ongoing customer relations. Workday does the same from an HCM perspective, from hiring to onboarding to payroll.
Visibility, visibility, visibility
The idea behind the mini-suite is to have visibility and constant exchange of data across a whole, interconnected process. What’s cool about that is that it’s not just dashboards that you can refer to, but real live data that’s available throughout the process. For example, if I’m a manager and I get a requisition for a purchase order in my spend management system, I can see how it impacts my budget, right then and there. Can you say, “no more variance reports or budget overruns?”
There are also alerts to look into specific things. For example, maybe there’s a lot of spending happening in a category you don’t have a contract for. You’re automatically alerted, and advised to source the category.
You would have to do a lot of integration to pull all that data together to get the same kind of intelligence from a collection of point solutions.
It’s certainly possible. You could use some sort of BI tool to pull information in and run reports that you would move to real time components, but you would lose some of the more nuanced synergies between pieces of the process.
Another challenge is that each point solution is going to have its own look and feel, so unless you put some kind of user interface over the top that makes it's look like its one process, you’re going to have a training issue on your hands.
Not only that, BI solutions are expensive to buy and maintain, and you need people with specific skills in that particular tool. These solutions have their place, but why build something like that if you don't have to?
It’s a lot easier to interface a single SaaS platform with your financial planning system or your ERP, and you can feed data back and forth two, three or more times a day to make decisions in one solution.
Losing out on network effects
The other thing you’re losing out on is benchmark data from network effects. When a SaaS provider has thousands of customers across different industry segments all performing the same business processes, the value of the data they collect continues to grow along with the platform.
For example, if it takes a similar size company in the same industry three days to onboard a new employee, and it takes your company eight days, maybe you need to make some changes. The SaaS provider has insights into best practices across many companies, and could potentially help you figure out what those changes are.
There are internal network effects too. With the whole process in one place, the more modules you have, the more transactions run are put into them more data you have and the more valuable the solution becomes.
When best of breed makes sense
Why even consider best of breed point solutions? Well, maybe there’s some must-have feature or function. But SaaS is making that rationale less valid. Most born-in-the-cloud SaaS companies do two or three releases a year, constantly refining and enhancing the product. That next release may have that bell or whistle you wanted, and you won’t have to buy an upgrade to get it.
And in many cases, it’s smart for companies to bite small and chew fast, addressing specific pain points quickly but with a minisuite that lets you automate one module at a time, rather than face new integration and reporting challenges when you’re ready to take the next step.
The ERP is going to sit at the core of IT and the business for the foreseeable future, but I think the days of adding on ERP modules to cover non-industry specific processes are coming to an end. There are now SaaS solutions that cover almost every standard business process from end to end, and easily integrate in a short period of time, using all the standard integration methodology.
When you have one platform that’s being used for a business process not only by everyone in your company, but in companies all over the world, there’s a snowball effect. You start rolling a little guy down the hill and by the time you get to the bottom, you have a huge boulder of benefits that a collection of point solutions would not be able to match.