In the marketplace, there are numerous ERP systems to choose from. The abundance of options can be overwhelming when trying to determine the right category of software that suits your needs. However, it is essential to be aware of the different types of ERP systems during your evaluation process.
In our digital strategy engagements and software selection projects for clients, one of our main tasks is to assist them in navigating the world of ERP software. We help them define which types of software might best suit their organizations and aid them in selecting the right vendor or vendors. However, clients often struggle with a general lack of understanding regarding the various categories and subcategories of ERP software.
Today, I will delve into the major categories of ERP systems, along with their strengths and weaknesses. This will allow you to focus your attention on the category or categories that align best with your needs.
The first category of ERP software is known as tier one ERP systems. This category is widely recognized and consists of large, comprehensive systems capable of serving the needs of bigger organizations. Examples of tier one ERP systems include SAP S/4HANA, a technology used by many Fortune 500 and Fortune 1000 multinational organizations. Another product is Oracle Fusion, also known as Oracle ERP Cloud, which serves as Oracle's flagship product for larger organizations. Lastly, Microsoft Dynamics 365 Finance and Operations is considered a tier one ERP system, designed to handle complex and diverse requirements of larger enterprises. Though there aren't many tier one systems, if your organization is sizable or has intricate needs, you may want to focus your evaluation efforts on these systems in the marketplace.
Now, another category of ERP systems is tier 2 ERP systems. For simplicity's sake, I will summarize all non-tier one ERP systems into this tier two category. Technically, there's also a tier three, but for the purpose of this discussion, I'll focus on tier two systems. These ERP software solutions are not as large, complex, and costly as tier one systems. Instead, they are built to cater to small and mid-size organizations.
Examples of tier two ERP systems include Workday, which is an HCM and financial ERP system. Additionally, there are systems like Epicor, Deacom and Acumatica, which focus on the manufacturing and distribution space. Lesser-known software vendors, such as Priority Software, specialize in retail and distribution, among other industries. These systems are not as well-known as tier one systems, but they are capable of handling the needs of small and mid-market businesses worldwide.
To expand the list, there are other organizations and vendors like Infor, which offers various products falling into the tier 2 space, such as Infor Cloud Suite, Infor M3, and Infor Sideline, among others. Oracle NetSuite is commonly used by smaller organizations, and IFS is a vendor frequently employed by field service and manufacturing industry organizations.
This list is by no means exhaustive, but it provides an overview of some tier 2 technologies. While they may not enjoy the same name recognition as tier one systems, they can be highly suitable for specific industries and situations, particularly for small and mid-market organizations.
Another category of ERP systems is known as "best of breed" systems. So far, I have discussed Tier 1 and Tier 2 ERP systems, which are primarily software solutions that integrate various business processes into one system. On the other hand, "best of breed" focuses on specific functions within an organization. Instead of deploying a single ERP system, you might choose to implement a CRM system for customer relationship management or Salesforce automation. Alternatively, you could opt for a separate HR technology like Workday or SuccessFactors, or look for a supply chain-focused solution like Manhattan Associates, Blue Yonder, or JDA.
These are just a few examples of subcategories within ERP, with specific systems dedicated to each area. It is worth noting that in addition to "best of breed" solutions, Tier 1 and Tier 2 ERP systems also provide modules that can address specific needs. However, organizations often prefer a "best of breed" model because these solutions tend to offer deeper and more robust capabilities in their specialized area. They are not trying to be a one-size-fits-all solution, but rather more specialized in their focus.
"Best of breed" ERP software is another significant category within the tech space.
Another category of ERP software, which may not be mutually exclusive and often overlaps with the other categories I mentioned (Tier 1 and Tier 2 ERP systems), is software platforms. Software platforms are technologies that not only offer operational capabilities, business processes, and workflows but also provide a foundation for you, your organization, and/or third-party developers to add on, extend, or modify the core software's functionality.
A prominent example of a software platform is Salesforce. While many people know Salesforce as a CRM or customer relationship management software, they might not be aware that Salesforce also serves as a platform. This platform allows third-party developers and individual organizations to build tools on it, extending or customizing the capabilities to fit specific industries or functions, providing a comprehensive and integrated ERP solution.
In the current landscape, many organizations are shifting their focus away from evaluating and deploying individual software applications. Instead, they are opting for deploying platforms that can evolve and adapt over time, offering greater flexibility and scalability.
Another relatively new category of ERP software is the concept of integration and interoperability. In other words, there are ERP-type or ERP-like systems available that do not provide all the workflows and capabilities within a single software. Instead, they connect workflows and data flows from multiple systems, similar to middleware back in the early 2000s or even earlier in the '90s, but with some differences.
For instance, products like Palantir or Snowflake are examples of common interoperability solutions that facilitate integration between various systems. They also offer business intelligence visibility to ensure organizations have an ERP-like experience without necessarily deploying a single ERP software.
Keep an eye on interoperability and integration tools in the industry, as they are becoming an emerging and increasingly important category within the world of ERP software.
This provides a quick overview of the different types of ERP systems available and the various categories to consider. By focusing on the categories that align best with your organization's needs, you can avoid getting overwhelmed with analysis paralysis.
For a deeper understanding of specific vendors and solutions, as well as the pros and cons of each, further research is recommended.
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.
