The big ERP vendors and their systems integrators seem to be having a field day lately. Forced upgrades, shifting customers from one-time payments to recurring revenue models going into perpetuity, and a larger share of IT spend are just a few of the things lining the vendors’ pockets.
In other words, they are partying like it’s 1999. But is it good for their customers?
I started my career as a recovering SAP ERP consultant in the late 1990s just before the Y2K chaos. Companies of all sorts were scrambling to upgrade their green screen systems before the four-digit month and year combo reset to zero on January 1, 2000 – and those companies spent money with a reckless abandon out of necessity. They also rushed to slam in new technology without a proper focus on business operations and organizational change.
Companies such as SAP, JD Edwards, and even Baan were beneficiaries of this burst in IT spending. I was one of thousands of consultants that were plucked from business school, put through the ERP consulting machine, and sent out to deploy new ERP systems to customers.
These dynamics were also part of what led to the bubble that eventually burst in the early 2000s. The party ended pretty abruptly, but the vendors sure did make a lot of money in the process. Today’s ERP vendor landscape feels an awful lot like 20 years ago, but for different reasons.
Take for example SAP’s 2025 deadline for its ECC and R/3 customers to migrate to S/4HANA. Most customers don’t have a burning platform or urgency to upgrade to S/4HANA, but SAP is making the mandate instead. In fact, I would argue that ECC and R/3 are more stable, more reliable, and more likely to meet the needs of the world’s most complex organizations than S/4HANA is in its current state. So why would SAP force this sort of change?
The answer? It is in SAP’s best interest. They and other ERP vendors will argue that it is in their customers’ best interests, but it’s not. I have yet to meet an S/4HANA customer who is up and running on the technology and clearly better off as a result. If anything, they are lucky to have survived the ordeal and lived to tell the story. The same can be said for many other ERP vendors’ customers as well.
And it’s not all just because of the software. There are other biases and forces at play that are contributing to implementation risks for many of the top ERP systems vendors. This whiteboard video traces common ERP challenges and risks back to root causes of ERP failure:
Unfortunately for the ERP vendors and their implementation partners, we aren’t going to see another Y2K for nearly another 1,000 years. So, they needed to get really creative if they were going to create that same sort of demand for their new flagship products. Especially since many of them are still happy with ECC, Dynamics, EBS, or whatever legacy products they may be using.
Fortunately for the ERP vendors, the cloud has been gaining momentum. Companies such as NetSuite, Salesforce, Workday, and other cloud ERP vendors are proving that the multi-tenant SaaS and cloud model can work well for some customers and for most vendors’ profitability. Hosting platforms such as AWS and Azure are proving that cloud hosting can be done relatively cheaply on a large scale.
The rest of the ERP world seems to be pouncing on and forcing a premature acceleration of this emerging trend by shifting their flagship products to the cloud. They see an opportunity to force another Y2K scenario in a way that makes them a lot more money. And since their ERP systems are in many cases not quite ready for prime time, they are introducing a ton of risk into the ERP ecosystem along the way.
The below video explains how the SAP and other ERP ecosystems are creating these risks and failure points for its customers:
The big problem with this manufactured, Y2K, cloud upgrade-forcing scenario is that we see a lot of half-baked cloud products being peddled by the ERP vendors. In some cases, they are missing huge chunks of critical functionality, such as manufacturing, demand planning, or field services.
This is a problem. A big problem. But hey, as long as the vendors, systems integrators, and implementation partners are all making money and not getting sued in the process, everything is ok…right?
My experience as an ERP expert witness suggests that failures are going to increase in coming years. Recent ERP failures at Lidl, Haribo, Revlon, National Grid, and others are just the tip of the iceberg.
The whiteboard video below illustrates how cloud ERP and other industry hoaxes are misleading the industry and leading customers down paths that aren’t necessarily in their best interests:
This is where reality kicks in. A new ERP implementation may in fact be the right option for your organization, but it doesn’t mean that you need to succumb to the biases and self-interests that dominate the industry.
It’s time for you to get your head in the game and make decisions on behalf of your company – not because your vendor or their implementation partners say, “trust us, we’re experts in the software.” If the parties involved are making any sort of money as a result of your decisions, then you better take their recommendations with a grain of salt.
This clear-headed mindfulness is important not only during your ERP software selection process, but also during implementation. As I explain in the above videos, there are dozens or hundreds of decisions that need to be made throughout an ERP implementation or digital transformation, so you need to be comfortable making those decisions and executing on them without bias. This is where independent ERP consultants such as our team at Third Stage can help.
I am happy to be a sounding board for any ideas you might be considering for your ERP implementation or digital transformation, so please feel free to contact me to arrange a time for a video or phone conference. I regularly give unbiased advice (with no strings attached) to organizations throughout the world, so I am happy to bounce around ideas on how to make your project more successful!