May 29, 2020
May 29, 2020
Contributor: Rob van der Meulen
ERP has evolved beyond resources for planning in its fourth era.
Enterprise resource planning (ERP) offers new opportunities for finance to enable touchless transactions, drive predictive analytics, improve strategic planning and be the backbone for finance transformation through an integrated suite of business applications. Get to know how this new era of ERP will affect your organization.
“Around 2010, a new era dawned, where ERP investments are the center of business strategy rather than a singular piece of technology,” says Nisha Bhandare, Senior Director Analyst, Gartner. “This evolution of ERP into enterprise business capabilities is driven and controlled more by the business than by IT.”
This latest stage is the fourth era of ERP. The first began in 1990, when Gartner expanded the definition of MRPII to include back-office functionality, and ERP has continued to evolve since.
As ERP solutions matured, organizations tried to get more from these expensive assets, and that pushed ERP far beyond its original boundaries in its second era. By the third era, ERP had become more of a strategy than a singular thing. This strategy encompasses whatever business capabilities the organization deemed to be relevant or necessary to deliver “ERP” and the constituent applications required to enable those processes.
This fourth era is a more radical shift — beyond just resources or planning or the enterprise and into a wider ecosystem. That ecosystem encompasses not only customers and suppliers, but also partners, competitors and stakeholders, often with interchangeable roles.
“Gartner predicts that by 2023, 65% of organizations will use ERP applications that encompass one or more fourth-era hallmarks,” says Bhandare. To help recognize and capitalize on this trend, Gartner has identified six hallmarks of this fourth era of ERP.
This is arguably the hallmark of fourth-era ERP. Artificial intelligence (AI) will fundamentally alter the ways organizations interact with clients, suppliers, things, applications and each other. More specifically, AI will help organizations to manage and integrate increasingly diverse application portfolios, and then will help support complex decision making through predictive analytics capabilities. This is why data is so important — it is fuel for AI.
Read more: Fact vs Fiction: Finance Use of AI
Don’t underestimate the importance of data in the digital era. It increasingly comes from multiple applications, sources, services and things. The need to create, manage and understand data is paramount in the fourth era of ERP, when the focus shifts from processes to the data they generate. This shift goes hand in hand with a focus on how to use data to improve organizational outcomes, for example by helping people with strategic planning or to identify risks.
Fourth-era ERP will be something people use without even really thinking about it. Those who source ERP solutions won’t really care about the vendors behind the scenes so long as the product works “out of the box.” Many ERP processes are already highly commoditized and offer systems-of-record-type functionality; AI will enable this trend.
Just as robots have taken over from people on the factory floor, AI drive an overhaul of other people-centric processes by augmenting judgment-based processes. It’s important to note, however, that AI augmentation makes humans more efficient, rather than replacing them altogether. Fourth-era ERP should help people perform faster or better and enable them to spend more time on higher-value work.
The lack of flexibility of early-era ERP was its downfall. The transition toward agile implementation and support in software generally is a key driver in turning ERP into an enabling technology. Agile practices lead to faster realization of business benefits of ERP in the fourth era. They enable developers to focus on agility and also on how ERP enables things to happen, rather than enforcing a rigid system of governance on an organization.
In the information age, everything is customer-facing. Fourth-era ERP must help organizations understand and meet the needs of their customers before their competition can do so. Every function front or back office can leverage ERP to drive customer value through faster on-time delivery or better customer satisfaction. This is a shift away from the ERP of the past that was focused on delivering internal value.
Read more: Improve Customer Experience With Artificial Intelligence
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Recommended resources for Gartner clients*:
ERP’s Emerging Fourth Era — Moving Beyond Postmodern ERP
*Note that some documents may not be available to all Gartner clients.