- ERP vendors are vulnerable to a marketing strategy that looks at history.
- We explain how this strategy works.
We have spent quite a lot of time analyzing how the enterprise software market works. We have a number of associations in the best of breed vendors both in the supply chain — my home software area, as well as other categories that we have evaluated.
What we have found is that most of these vendors are in similar positions — they typically have better applications than what is offered by ERP-centric vendor brands in the market, but because the major brand has so much “mindshare” over customers, and is recommended by the major consulting companies, the best of breed vendor has much lower market share than they really should have.
Keep Modest at All Costs, Show your Application as “Complimentary”
In order to be attractive to prospects, best of breed vendors tend to downplay (to clients) the degree to which their applications can replace the functionality within the ERP systems.
This means that companies often get poor information about where specialized applications should be used versus where ERP functionality should be used. These best of breed vendors prominently display logos on their websites that show they are compatible or have adapters with the major ERP based software vendors.
My View on This Strategy
I don’t like this strategy for several reasons. First, it does not accurately communicate that the best of breed vendor a superior application to the application that is offered by the ERP-based vendor. I call this strategy playing the big ERP based vendor’s game, and while it seems justified on the surface, it will never lead to anywhere close to the proper amount of sales that the best of breed software vendor deserves based upon the functionality of their application. It results in the ERP vendor having its system used for all types of things it is unsuitable for. It essentially sets a mental framework which puts the tier 1 ERP vendor in the driver’s seat.
The Evidence for the Benefits of the ERP-Centric Approach?
I have had this debate a number of times with a number of best of breed vendors — and while discretion is often considered the better part of valor, I think best of breed vendors should instead frontally attack the logic of the ERP. The reason for this is that the logic of the ERP is not supported by research in this area. I have a game plan for doing this. This game plan is based upon the meta-research (that is a review of all the available research into the ROI of ERP systems) that I have performed into tier 1 ERP applications. The inaccurate presentation of the benefits to companies of tier 1 ERP systems is one of the most interesting stories in enterprise software, but it is also a largely untold story with close to no one covering the story in its entirety.
The ERP vendors won’t tell it, nor will the major consulting companies, nor will IT publications, nor will the big IT analyst firms — so it falls on the best of breed vendors to get the word out, as they stand to gain the most by doing so. I will describe this story in a future post. However, the short version is that companies that implement tier 1 ERP systems do not receive a productivity boost, and pay a heavy price concerning higher software costs.
The Truth on the Decline of Integration Costs?
Almost unknown to everyone is that integration costs — which were projected to decline with ERP system adoption — have increased as a percentage of the IT budget.
This is because while Tier 1 ERP systems are integrated to themselves, they make integration to other systems more difficult — and companies cannot live by ERP alone.
A Different Strategy
I propose that instead of following the strategy of accepting all of the assumptions of the ERP benefits, the best of breed vendors should focus on a strategy which calls into the question the benefits of following this approach.
This approach was also questioned in a recent article by Lora Cecere, which has been a quite popular article and generated a good discussion.
Lora picked up on something through a survey and her personal experience that is verified by my meta-research and ERP TCO calculators at Software Decisions. Now, it should be noted that Lora has a more moderate viewpoint on ERP that I do, and I had a more moderate position as well before I performed extensive research on the history of ERP benefits for my book The Real Story Behind ERP: Separating Fiction from Reality on this topic.
Even I was surprised by what I found. If one does not perform this research, it’s very easy to accept the assumptions of ERP benefits which are often stated, often accepted, but rarely if ever investigated.
In conclusion best of breed, vendors will benefit by not playing the ERP-centric game — as they can never obtain the sales they deserve by following this complementary strategy. To follow this strategy, best of breed vendors should instead clearly communicate the evidence for why the tier 1 ERP-centric strategy does not deliver the proposed benefits. This is not as challenging as it might first appear. I have all the research — both in the form of meta-research — which synthesizes all of the academic research on Tier 1 ERP systems performed since ERP was first introduced in the mid-1980s. In but also regarding specific TCOs and the combined functionality ratings specific solution architectures ranging from 100% best of breed to ERP-centric, to ERP + best of breed.
While all the information is easily available, as I have it all compiled and even interactive calculators, at least some best of breed vendors need to put it to use
Financial Bias Disclosure
Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.
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The Real Story on ERP
How This Book is Structured
This book combines a meta-analysis of all of the academic research on the benefits of ERP, coupled with on project experience.
ERP has had a remarkable impact on most companies that implemented it. Unplanned expenses for customization, failed implementations, integration, and applications to meet the business requirements that ERP could not–have added up to a higher Total Cost of Ownership for ERP were all unexpected, and account control, on the part of ERP vendors — is now a significant issue affecting IT performance.
Break the Bank for ERP?
Many companies that have broken the bank to implement ERP projects have seen their KPIs go down— but the question is why this is the case. Major consulting companies are some of the largest promoters of ERP systems, but given the massive profits they make on ERP implementations — can they be trusted to provide the real story on ERP? Probably not, however, written by the Managing Editor of SCM Focus, Shaun Snapp — an author with many years of experience with ERP system. A supply chain software expert and well known for providing authentic information on the topics he covers, you can trust this book to provide all the detail that no consulting firm will.
By reading this book you will:
- Examine the high failure rates of ERP implementations.
- Demystify the convincing arguments ERP vendors use to sell ERP.
- See how ERP vendors take control of client accounts with ERP.
- Understand why single-instance ERP is not typically feasible.
- Calculate the total cost of ownership and return on investment for your ERP implementation.
- Understand the alternatives to ERP.
- Chapter 1: Introduction to ERP Software
- Chapter 2: The History of ERP
- Chapter 3: Logical Fallacies and the Logics Used to Sell ERP
- Chapter 4: The Best Practice Logic for ERP
- Chapter 5: The Integration Benefits Logic for ERP
- Chapter 6: Analyzing The Logic Used to Sell ERP
- Chapter 7: The High TCO and Low ROI of ERP
- Chapter 8: ERP and the Problem with Institutional Decision Making
- Chapter 9: How ERP Creates Redundant Systems
- Chapter 10: How ERP Distracts Companies from Implementing Better Functionality
- Chapter 11: Alternatives to ERP or Adjusting the Current ERP System
- Chapter 12: Conclusion