Amidst all the key notes, lectures and drink receptions at SAP TechEd 2015, anyone that was there could be forgiven for missing SAP signal the quiet demise of ERP, not only as a product but also as a concept.
So why is ERP (something that dates back to the 1960s) now becoming increasingly obsolete?
According to APICS (The American Production and Inventory Control Society), ERP can be defined as a, “…framework for organising, defining, and standardising the business processes necessary to effectively plan and control an organisation so it can use its internal knowledge to seek external advantage.”
This definition is apt as it succinctly identifies why traditional ERP is no longer sufficient in today’s digital world. The term ‘internal knowledge’ is the fundamental flaw with this traditional notion, as the functionality required for today’s digital enterprise has grown exponentially beyond the boundaries of internal knowledge. It has now shifted to the acquisition of knowledge interpreted from everywhere – from all data channels, including data from business networks to sources as diverse as the Internet of Things (IoT) and Twitter.
Many attempts have been made to digitise businesses predominantly through Cloud based ‘bolt-ons’, principally promoting functionality that enables vendors and customers to collaborate. Whilst many of these solutions provide an undoubted step forwards in terms of levels of data collaboration, they have, in reality, turned these customers into ‘Digital Swans’ – those who on the surface can be seen to be embracing digital adoption, but are in reality still faced with the same underlying limitations.
As a concept, digital is nothing more than data harnessed through technology and turned into knowledge. The more data that can be intelligently turned into knowledge, strategy and then action, the greater the advantage to the business.
Conceptually data flows like water through a system. When a pipe within the system is of sufficient size the water flows freely. However, the speed of the water and thus the potential of the entire system are determined by the flow of water through the narrowest point. Legacy ERP systems were never intended, nor are technologically able to deal with the volume and immediacy of data generated by today’s digital economy. Even if it hasn’t done so yet, this means ERP will soon become a company’s digital bottleneck, hindering the agility of the company and providing a barrier to expansion into new markets.
The digital heart
It’s for this reason that SAP has launched S/4, a product that has ‘digital’ embedded into its DNA. It has been conceived to connect natively with all data sources, both the ones currently known and those that will develop in the future. Together with connectivity, it is also built upon the HANA database. Without diving into the details of column-orientated, in-memory database technology, S/4 is not only powerful enough to turn this data into actionable knowledge, it also contains native functionality to use data to predict and enrich. Ultimately, this enables businesses to harness insights completely outside the scope of current ERP.
Therefore when SAP says that S/4 is not simply a replacement for ERP, it is speaking the truth. Whatever Enterprise Management (SAP’s term for this next generation of ERP) will look like, it will become the beating digital heart of an organisation and contain the potential to surmount challenges that have not yet even been conceived. This potential will allow businesses to grow, evolve and adapt to the new digital business landscape, an environment in which the speed of disruption will continue to accelerate. Enterprise Management (EM), like ERP before it, will not and cannot guarantee success but it can prevent failure, as well as provide a forward-thinking organisation the means to succeed in a new landscape where imagination and execution are closer than ever before.
ERP is dead. Long live Enterprise Management.