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The End of ERP

Written by Ken Kinlock
Published on Tuesday, 21 February 2012

ERPGravesOver the past several years there have been numerous articles written  on “Is EDI Dead?”. But EDI just “keeps on trucking”. EDI embraced XML, AS2 and the Cloud; to name just a few recent advances. Plus, EDI became the “engine” for E-Commerce.

Now ERP in in the spotlight. Business models for both new and old companies have changed. Companies are different: it is called the “Subscription Economy”. What will happen to ERP?
Recently, Tien Tzuo wrote an article “The End of ERP” in FORBES Magazine. Tien Tzuo is founder and CEO of Zuora. He was previously chief strategy officer and chief marketing officer at
Tien begins by explaining how SAP and Oracle are scrambling to position on the Cloud but that it may be too late. He comments: “Why? Because, in short, ERP – enterprise resource planning software – is on its deathbed.”

He makes this claim: “ERP’s days are numbered. And it is because of a fundamental shift that is taking place regarding how people consume products and services driven by the massive growth of the cloud itself.” He backs this up by pointing to a shift from a “buy once” economy to a “subscription” economy of recurring customer relationships. He gives some great examples of how we are changing from owning tangible products to instead subscribing to services that provide us with experiences: renting cars as needed instead of owning; streaming movies instead of renting DVDs; companies using apps and Cloud computing rather than buying hardware and software. Tien comments: “This cultural transformation has profound implications for business models. Why? Success is no longer gauged by counting how many units of your product you have sold. Rather, success is measuring how many customers are using your service on a recurring basis and how successful you are monetizing those recurring relationships.”

The Subscription Economy is changing whole business models. It is no longer how many products you sold, but how many customers are using your service and how successful you are at it. The greatest example he gives is Dell Computer. Instead of just selling low-margin hardware, they are refocusing themselves to offer services. In the words of Michael Dell:  “pricing our products based on value rather than based on cost”.

Because of the fact ERP's are built to track products that can be put on a pallet, they are not flexible enough to track services that can be consumed over a period of time. Subscription-based businesses using an ERP struggle with these questions:

  1. Who are my customers?
  2. How can I price this service the way I want to?
  3. Where's the renew button?
  4. Why can't I sell to everyone?
  5. What's going on with my financials?

Tien sums up: “It’s for all of these reasons that ERP’s days are numbered. The Subscription Economy demands new ways of both measuring and monetizing customer relationships.  Companies must break out of the shackles of ERP if they are to succeed in this new world. Or, risk being buried alongside it.”

Great article Tien, now what will replace ERP? My prediction: someone will take the “Decision Support System (DSS) from the 1980's, completely modernize it and put it in the Cloud as an app.

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