CIOs Must Act Fast to Address the Relegation of Legacy ERP

By 2016, heavily customized ERP implementations will be routinely referred to as "legacy ERP," according to Gartner.. Gartner said that as alternatives to monolithic, on-premises ERP and enterprise applications continue to mature, CIOs and application leaders must take action to address the fast-approaching reality of "legacy ERP."

"The need for agility and responsiveness has led highly customized ERP implementations to an impasse, creating a subset of legacy ERP installations that must be dealt with constructively," said Andy Kyte, vice president and Gartner Fellow. "Early ERP adopters, particularly large enterprises in energy, manufacturing and distribution industries, are paying the penalty of a decade or more of excessive customization. Businesses looking to improve administration today can take advantage of lower costs, better functional fit and process flexibility offered by blending cloud applications with on-premises applications in what we now refer to as 'postmodern ERP.'"

 The ERP suite is being deconstructed into postmodern ERP that will result in a more federated, loosely coupled ERP environment with much of the functionality sourced as cloud services or via business process outsourcers.

"When ERP was in its heyday, CEOs and business executives wanted reliable and integrated solutions, so they seized upon ERP as the way to provide this," said Kyte. 

Gartner Predictions

By 2018, at least 30 per cent of service-centric companies will move the majority of their ERP applications to the cloud.
The concept of a single ERP suite that meets all of an enterprise's needs is dead, and has been replaced by a hybrid ERP approach that combines cloud point solutions with a smaller "core" of on-premises ERP function, such as financials and manufacturing. Gartner predicts that hybrid ERP environments will be the norm within five years.

 "Longer term, over the next 10 years and more, we envision a scenario where more of the market 'flips' to the cloud. Instead of having on-premises core solutions that are complemented by innovation or differentiating processes being supported in the cloud, some organizations will move all their ERP functionality to the cloud," said Nigel Rayner, research vice president at Gartner. 

By 2017, 70 per cent of organizations adopting hybrid ERP will fail to improve cost-benefit outcomes unless their cloud applications provide differentiating functionality.
While Gartner expects that most organizations will shift from monolithic ERP to a hybrid approach within five years, the adoption of cloud services for some components of functionality does not guarantee a reduction in the total cost of ownership (TCO). On the contrary, there is the potential of actually increasing the TCO.

 "Most organizations still fail to recognize and plan for the total lifetime costs of their ERP solutions, whether on-premises, cloud or hybrid. Moreover, with cloud-based solutions it is much too easy to fall into the trap of taking a short-term, tactical approach — lured by the seemingly attractive low per-user costs," said Carol Hardcastle, research vice president at Gartner.

"You should never assume that adopting cloud applications will magically provide value; it's essential to link business objectives to your ERP strategy to ensure value is realized, whether adopting on-premises or cloud applications," said Hardcastle. "By hybridizing solutions there is greater risk of fragmenting the business case and therefore diluting the value where the sum of the parts is less than the whole. However, there is also the risk of taking a less strategic approach — placing more focus on implementation at speed rather than long-term delivery of value."

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