ERP as we know it today didn’t just happen. It evolved through a fascinating confluence of process and technology. Our understanding of the evolution of ERP will dictate how well we will manage our journeys to the Cloud and the next generation of business computing. The Journey appears to be chaotic and unpredictable, but it is a logical step in the evolution of technology. For IT and Lines of Business leaders, understanding how we got to where we are today is critical to understanding where we are heading.

With the accelerating pace of corporate migration to the Cloud and the maturity of Hybrid Cloud computing platforms, the 40 year old Client-Server era is ending, with business technology finally evolving to a more open, engaging and iterative business computing platform. Client-Server’s  flagship product, self-contained Enterprise Resource Planning (ERP) software, will still remain viable for an extended period of time. However, its nature will change away from the ‘single instance’ framework that we have known over the past 25 years to one in which it will serve as the transaction engine and system of record within a Hybrid Cloud architecture.

The benefits of moving from an ‘ERP-Centric’ enterprise platform to a ‘Business-Centric’ one are huge. The transition will occur over time and require new skills, perspectives, and relationships. This transition is not unique; it is part of a continual cycle of technology innovation.

More than anything else, there are three key themes to this article:

• Process and Technology have been intertwined over the past 40 years, ever since the first desktop application. This is as it should be. Business technology outside the context of a process rarely solves problems or creates opportunities.
• Organizations are silos by nature and view things through different lenses. As a result, we often do not accept our commonality nor value our differences. Technologists do not typically value uniqueness, and Process Owners often bristle with implications that some processes are common. We too often ignore a middle ground.
• Every innovation, regardless of how highly it is valued at its peak, will at some point grow obsolete.

The Rise of Process Automation

In 1990, Michael Hammer, a former professor of information technology at MIT, proposed in his Harvard Business Review’s article “Reengineering Work: Don’t Automate, Obliterate” that business processes had become too reliant on technology; a direct criticism of the disjointed process automation that had proliferated through the 80’s. Businesses widely embraced this through the early 90’s and an accelerating wave of business process reengineering (BPR) programs ensued.
In 1993, Michael Hammer and James Champy published one of the most influential business books of the 90’s, “Reengineering the Corporation”. It expanded upon three concepts initially laid out by Hammer in his HBR article:

• Business Process: A standardized set of activities that accomplish a specific task, such as processing a customer’s order
• Business Process Reengineering (BPR): The analysis and redesign of workflow within and between enterprises
• End to End Business Process: A group of tasks that when brought together, create a result that customers value

The Stage is Set for ERP

“Reengineering the Corporation” laid bare the consequences of departmental automation. The mounting demand for standardization, end-to-end workflows, process redesign and centralized information made the case for a single platform for all enterprise processes and information, and provided the fuel for Enterprise Resource Planning (ERP), which ignited in the mid 90’s.

Information Technology became a C Suite focus as CIOs and CFOs began to demand more integrated and centralized systems.  Similarly, COOs saw standardized and centralized systems as a way of developing more common processes and reduced sub optimization.

ERP Arrives

The build out of ERP that began in the early 90’s and accelerated explosively into the late 90’s was initially led by four players, each starting with a different core and subsequently expanding into enterprise scope:

• BaaN (Finance and Administration)
• JD Edwards (Cost Management)
• PeopleSoft (Human Resources)
• SAP (payroll and accounting).

While internal structures differed (for example, SAP’s architecture was highly centralized while PeopleSoft was modular and tightly integrated with closed middleware), all exhibited the same outcomes:

• common data structures
• structured workflows
• common business processes
• tight integration across the enterprise

ERP was to have a huge impact. Efficiencies from common processes, cross functional workflows and standardized data enabled global business models, which soon flourished. Information captured from processes anywhere within and across functions enabled enterprise scale decision making.  Visibility of the customer resulted in improved service and customer loyalty. And as 3 tier architectures became web enabled in the late 90’s, processes even began flowing across enterprises.

As time went on, the technology matured as it always does and enterprises began to value what they had achieved. The investments in standardization and common processes soon began to pay off. A blunt reminder of the value of standardization came in the early 2000’s, when accounting ‘flexibility’ resulted in several high profile scandals and the resulting Sarbanes-Oxley Act of 2002. Not coincidentally, CIOs were to take the lead role in driving compliance with ‘SOX’ within their enterprises. The value of IT, and ERP in particular, became visible to executive committees and the Boards to whom they report.

Rapid growth through the early 2000’s, coupled with the decreased focus on process redesign as carryovers from the rush to Y2K, resulted in geographically-dispersed and functionally-disparate ERP systems at many large companies, fueling a need for upgrade and consolidation. That post-Y2K, second wave of ERP investment was much more orderly and fed the technology industry through the next decade, even with a slight pause during the 2008-2009 recession. A wave of acquisitions occurred during that decade leaving only two major players. Times were good for those Big Two: Oracle and SAP.

Enterprises (a term that was rarely even used until ERP) were soon investing up to a whopping 9% of annual revenue for implementations in ERP implementations by 2008 (ERP Costs: 3 Signs Companies Are Wasting Less Money CIO.com, Feb 5, 2010), after which costs finally began decreasing. The ERP industry continued to flourish.

To be sure, implementations in those early years were costly and extremely complex. And most enterprises were not prepared for the huge investments in time and resources in Change Management that would be required. Organizational structures would change due to the interdependencies that integrated processes created. ERP became in equal parts technology innovation, process redesign and change management.

During the late 90’s though the focus shifted away from process to a headlong rush to get implemented ahead of Y2K, which created shortcuts that would plague IT departments for years to come. Whether or not Y2K was an illusion in the first place or something that ERP investment prevented is still a matter for debate. Nevertheless, the huge investments in ERP were to about to pay dividends for CIOs and CFOs.

Disillusionment Develops

But attention was already being placed on ERP’s fundamental flaw. Just as Moore’s Law drives technology innovation, business innovation feeds on itself, where each accomplishment creates multiple opportunities for improvement. The pace of business change was becoming exponential but asynchronous across industries, enterprises, and even individual functions. ERP’s singularity would quickly become a barrier to change.  IT Leaders, and CIOs in particular, struggled to react.

Next Time

Learn about the CIO dilemma that led to adding systems of engagement to ERP systems of record.

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