How Artificial Intelligence is Fundamentally Transforming ERP Systems (and Vice Versa)

Written By: Eric Kimberling
Date: July 7, 2023

Artificial intelligence is having a profound impact on the ERP software industry.

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Artificial intelligence (AI) has gained significant recognition, and you may already be familiar with the concept or have experimented with AI solutions like Chat GPT. However, there are still questions surrounding the relationship between AI and ERP software. In this discussion, we will address these inquiries and explore the transformative impact of AI on ERP software.

To clarify, AI and ERP are distinct technologies, but they can coexist and complement each other. Major tech providers, such as Microsoft and Google, heavily invest in AI and offer standalone AI platforms like OpenAI's Chat GPT and Bard. Conversely, some ERP software providers are also investing in AI capabilities, incorporating machine learning and other AI technologies into their organic ERP systems. Additionally, prominent ERP software providers sometimes acquire AI providers to integrate AI technology into their flagship ERP systems.

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Given the various directions AI is taking, it has become an area of significant interest and investment, with extensive research and development efforts. In light of this, our focus today is to examine how AI is impacting ERP software and provide you with essential insights when considering potential ERP solutions.

Focus on Data

One significant way artificial intelligence (AI) is reshaping our perspective on ERP software is by emphasizing the value of data. Without reliable, accurate, and complete data, AI cannot be effectively utilized. The quality of data directly impacts the performance of AI models. Consequently, AI compels us to prioritize the data aspect, which should have always been a central focus in ERP software implementations.

This emphasis on data extends beyond internal data sources. While it is essential to ensure accuracy and cleanliness in product and customer information, AI enables us to leverage third-party data sources as well. For instance, in the context of a retail organization, predicting demand is challenging. However, with AI, we can now analyze not only historical trends and patterns exhibited by our customers but also incorporate external data like weather-related information and other relevant factors. These additional data sets can influence consumer behavior and enable us to make more accurate predictions. By integrating massive amounts of data into AI models, we gain insights and a deeper understanding of future possibilities through predictive modeling.

The aforementioned example is just one illustration of how AI compels ERP systems and their users to reconsider their approach to data. It highlights the shift towards viewing data as a crucial competitive advantage and valuable asset. AI encourages organizations to rethink their data strategies and leverage data as a vital resource in gaining a competitive edge.

More Employee Efficiency

In addition to the focus on improving data quality, artificial intelligence (AI) enables us to enhance employee efficiency and leverage their competencies and skills more effectively. AI has the capability to automate mundane, repetitive, and low-value tasks, leading to higher value outcomes at reduced costs. ERP software providers are incorporating AI platforms like Chat GPT to simplify information retrieval for employees. Previously, navigating through various menu options or remembering transaction codes was necessary to find specific information. However, now employees can simply ask AI or use an AI interface to obtain the required information. The location of the information within the system becomes irrelevant; what matters is how employees articulate their query. This example illustrates how AI can save time for employees within an organization. AI offers a multitude of ways to potentially enhance employee efficiency.

Artificial intelligence not only facilitates the more efficient utilization of employees but also makes their jobs easier. This ease of use and accessibility should have been inherent in ERP systems from the start. However, it is only now, with the integration of artificial intelligence, that accessing essential information in a highly efficient manner has become a reality.

More Employee Effectiveness

AI plays a significant role in enhancing the utilization of ERP software, particularly by making employees more effective. While we have discussed the efficiency aspect, it is crucial to highlight that AI empowers employees with tools to extract more value from the systems and technologies they utilize. This goes beyond easier information access; now employees can leverage information, models, and predictive analytics that were previously unavailable. Consequently, this integration of AI with ERP capabilities enables employees to perform their jobs with increased effectiveness.

There is a common concern that AI may replace jobs, and while that may be true in some cases, I would argue that AI also creates numerous opportunities and enhances the effectiveness of existing roles. AI equips employees with tools, insights, and the ability to process vast quantities of data, surpassing the capabilities of a single human. Therefore, we should consider how to leverage AI within ERP systems to not only make our employees more efficient but also enhance their overall effectiveness.

Less Back Office Cost Center, More Value Creation

Historically, ERP systems have had a reputation for being costly, high-risk endeavors that often fail to deliver substantial value. However, the emergence of artificial intelligence (AI) allows us to reassess the purpose of deploying ERP software. If the goal is to enhance employee efficiency, organizational effectiveness, and gain access to previously unattainable insights and information, it implies that ERP software can now provide business value that was previously lacking.

This shift is significant because organizations are increasingly aware of the risks and costs associated with ERP software deployments. In particular, within the private equity space, where firms invest in mid-market and high-growth companies, expectations revolve around value creation. There is less tolerance for investing in technology solely for the sake of technology. The integration of AI with ERP software aligns well with these expectations. By leveraging emerging technologies and capabilities like AI, outdated ERP software can become more valuable, creating value for organizations instead of consuming costs, time, and resources.

In the near future, AI is expected to continue driving value creation, shifting the focus away from back-office functions that offer limited value and redirecting it towards high-value areas that improve customer and employee experiences. Ultimately, this will enhance the return on investment from technology investments.

More Strategic Results

Artificial intelligence is revolutionizing the ERP software landscape by enabling organizations to adopt a more strategic approach towards technology. It allows us to shift our perspective from considering technology solely as a back-office function to recognizing its role in achieving long-term strategic objectives. When we combine ERP software, which contains transactional back-office data, with artificial intelligence, we gain new insights and a deeper understanding of our organization, as well as future possibilities. This enhanced understanding enables us to make more strategic decisions and align our actions with our broader organizational vision.

By leveraging AI, we can reduce the time spent on manual tasks and information retrieval, freeing up more time for critical human capabilities such as thinking, observing, and absorbing insights derived from AI models. This empowers us to make better decisions and pursue actions that align with our organization's long-term strategic vision. These examples highlight the transformative impact of artificial intelligence on how we perceive and utilize ERP software.

I would enjoy brainstorming ideas with you if you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, so please feel free to contact me at eric.kimberling@thirdstage-consulting.com. I am happy to be a sounding board as you continue your digital transformation journey.

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices.

Kimberling Eric Blue Backgroundv2
Eric Kimberling

Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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