ERP Implementation, ERP Sales, ERP Selection

ERP Trends in 2021

March 01, 2021 by Norbert Gronau

ERP Trends in 2021

 

This article provides an overview of the trends happening in the ERP Systems industry in 2021. All the predictions made here are based upon the author’s many years of experience and his expert views on the current market. The article discusses some of the big questions being asked in 2021: Which new technologies are making headlines this year? What affect has the pandemic had on upcoming or ongoing ERP projects? What lies ahead for the ERP market? What is happening to ERP systems operations? This article has some interesting answers. At the end it will also touch on some aspects that, unfortunately, are less likely to have an impact in 2021. 

ERP Systems Operations

There are three prominent trends in this area: vendor pressure on the cloud, optimization of existing systems, and changes to licensing models. 

ERP systems vendors clearly want to encourage their customers to move toward cloud solutions. This can create even higher barriers to switching as well as important licensing considerations (see below). However, ERP users’ desire for comprehensive individualization of applications has proven to be problematic in this context – partly for material reasons, and partly due to a desire to avoid changes to processes that are already in place. A multi-tenancy concept is almost impossible to sustain within existing ERP architectures, as changes to ERP systems almost always affect the user interface, the application, and the data model. Some ERP vendors, therefore, only allow customers to use what is called a single-tenant model as a “cloud solution”. However, this is closer to a software as a service model (Fig. 1) and barely results in any cost advantages when compared to operations within the company’s own data center. We will take a closer look at this below in the “The ERP Systems Market” section.

From the user’s point of view, optimization has top priority. An increasing level of new requirements from business processes and the many additional application systems that require integration into end-to-end processes demand an exceedingly high level of commitment from ERP vendors. Unfortunately, in the past, many vendors have focused on the acquisition of new business and tended to neglect existing customers. Some ERP vendors, such as proAlpha, have created special business units for their larger and more demanding customers to better handle their complex requirements. On the other hand, the lack of good ERP consultants is becoming increasingly conspicuous, which results in unnecessary delays to such optimization projects.

Fig. 1: Assignment of services to cloud categories [1].

Lastly, there seems to be no end to vendors’ creativity when it comes to licensing models. Vendors have become accustomed to comfortable sales margins of 30 to 40%, and the market is largely saturated. In order to maintain – and ideally expand upon – this revenue situation, new licensing incentives are constantly being invented. With the processors of the deployed servers serving the database, the document volume and the number of connected IOT devices become valuable additions to the license. If the ERP installation is in the cloud, surcharges for availability and storage space are often added. Unfortunately, there is rarely an opportunity to escape the greed of the vendors. Only when the pain becomes unbearable is a replacement project taken into consideration. Whether the new vendor remains cheaper over the long term is uncertain. However, favorable licensing conditions could be arranged for at least a few years.

Technology

In the field of technology, 2021 will see the first tangible applications of artificial intelligence methods being integrated into ERP systems. Machine learning (ML) methods are readily available today for many areas, and the first ERP system vendors (such as asseco) are taking advantage of this. ML tools can alter their behavior in response to changes in the environment and input data. This aspect makes the use of machine learning valuable for a variety of practical tasks [2]. This applies both to the area of sales, where customer information is augmented by intelligently scanning the Internet and subsequently evaluated by means of Natural Language Processing, and to materials planning where the determination of certain parameters will be left to an AI in the future.

Somewhat in the shadow of AI, but no less exciting, is augmented reality. Here, information, e.g. from the ERP system, is displayed during the execution of a process step (Fig. 2). It is important to note that this close coupling with the ERP system only functions if two important prerequisites are met: Firstly, the ERP system must be able to handle instances of articles (in principle, any system with sufficient batch or serial number tracking can do this). Secondly, the concept of the digital “twin” needs to have already been established in the ERP system. The concept of the digital twin was developed by Grieves and Vickers [3] and is based on the mapping of; physical products in real space, digital products in virtual space, and the connections of virtual and real products through data and information sharing [4]. We will see the first pioneers in this area in 2021 and further development is inevitable. 

ERP Projects

Fueled by consistent economic growth in most industries up until 2019, many ERP replacement projects were launched. Many such projects started life as scouting projects, but the findings were not fully implemented. In this author’s experience, 90% of an ERP selection project can be done remotely without the consultant having to visit the customer in person. The only major downside to digital-only communication is that it can be a challenge to win the customer’s trust. In this respect, trade media has proven to be extremely valuable for building trust.

Figure 2: Overlay of information from the digital twin (source: Zentrum Industrie 4.0 Potsdam).

For the first time, due to the pandemic, some ERP implementation projects were carried out exclusively remotely, for example by PSIpenta. However, in this case contact between vendor and customer had already been made in person. Thus, a level of trust had been established prior.  That said, it is evident that fatigue is setting in surrounding digital conferencing and its associated tools. Microsoft Teams is a particular offender in this regard. Its crimes include an insatiable hunger for data (even for guest accounts), poorly adjustable screens, and many more. But perhaps its most serious crimes are the classic: “Can you see my presentation?” to which the answer is too often “No.”, or the occasional but consistent variant where the poor audience is left staring at the first page of the presentation whilst the unwitting speaker is already well on their way to presenting the contents of Slide 5. The fact that Microsoft provides the Teams application as a freebie in O365 licenses speaks volumes to the value they place on this product.

The ERP Systems Market

Two major software vendors are currently transforming their offerings, with significant change requirements for their respective customers. SAP wants to convert its customer base to S/4HANA. Due to the complex installations of the predecessor product SAP R/3, the costs for the changeover lie within the range of an entirely new implementation. Smaller and mid-sized R/3 customers will need to consider whether to follow this path or start a vendor-neutral selection. I firmly expect SAP to lose the lower midmarket along the way, because the alternative Business One product will not be a viable option for existing smaller R/3 customers. 

Microsoft wants to force customers of the previous solution NAV onto their new BC product and thus into the cloud, but, once customers are there, there is no option to individually customize the system to needs of the customer. This is putting system houses in a tight spot because they must now make their solution cloud-ready in a short time. There are already signs that system houses are on the back foot. This trend will intensify in 2021. It is unlikely that new, overseas vendors will see success in the German market in 2021.

New ERP Architectures? Not in 2021

ERP systems form the backbone of information processing in companies and other organizations. Therefore, the changes occurring thanks to the ongoing digital transformation must be accompanied and tracked by ERP systems [1]. The ERP system of the future must be able to map all instances of all business objects at all levels of production and all points in time in an individualized manner. Looking ahead, processes will have to be much more deeply interconnected with the ERP system in order to obtain appropriate information for traceability. Therefore, ERP systems must have process models that can be customized by users at runtime or that can appropriately respond to and record actual process steps performed by users.

Shifting decision-making and coordination functions from a hierarchically high-level system to coordination and communication between individual objects of the digital company means that the analytical capabilities of ERP systems must be more fully developed to include monitoring, forecasting, simulation, and optimization functions. 

Tasks previously performed by specialists must migrate to users and key users. Tasks previously performed by employees must migrate to managers. Furthermore, new skills must be acquired by organizations in order to handle new specialized tasks such as analytics, maintaining security experts, maintaining cloud infrastructures, etc.

Existing ERP architectures are only partially suited to all of this. My research group has therefore launched an initiative to work together with vendors on the ERP system of the future. If you are interested, please contact the author!

 

 

Effects of the pandemicTechnologienTrends


[1] Gronau, N.: ERP-Systeme. Architektur, Manage ment und Funktionen des Enterprise Resource Planning. 4. Auflage de Gruyter 2021, ISBN
978-3-11-066283-2
[2] Grum, M. u.a.: Tools des Maschinellen Lernens: Marktstudie, Anwendungsbereiche und Lösungen der Künstlichen Intelligenz. Berlin 2020, ISBN
978-3-95545-380-0
[3] Grieves M.: Digital Twin - Manufacturing Excellence through Virtual Factory Replication. Whitepaper (2014).https://theengineer.markallengroup.com/production/content/uploads/2014/12/Digital_Twin_White_Paper_Dr_Grieves.pdf (Abruf: Februar 2021)
[4] Herlyn, W. J.: ERP und Industrie 4.0, ERP Management 4/2019, S. 26-29




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