Custom Enterprise Resource Planning (ERP) is dead, says epic ERP strategy director, Dr Daneel van Eck.
When it comes to ERP there has long been debate around whether to custom build or buy a Commercial Off The Shelf (COTS) system. While it did make sense to custom develop an ERP in the past, in most instances that is no longer the case, insists Van Eck. In the past COTS ERP software was often expensive and difficult to customise, and if you had a unique requirement it made sense to custom develop.
His background includes close to three decades of commercial software development and experience in designing and maintaining custom ERP systems. With one foot in COTS and the other in software development, he has strong opinions on when each are applicable.
“A COTS ERP will often have at least 20 000 customers paying either subscription fees or annual maintenance fees and this income can provide funding for more than hundreds or even thousands of developers continuously improving the software,” says Van Eck. “There is no way that an internal (or outsourced) team of even 10 or 20 developers focused on enhancing a custom system could compete or even keep up, considering the budget for innovation that a COTS system will have available. This doesn’t even take into account cloud enablement, adoption of IoT, and architectural and platform changes released from large players like Microsoft.”
The problem, he says, is that a small custom team can’t easily innovate or achieve the breadth of functionality that a COTS system can achieve. “Typically you’ll find a custom team continually trying to prioritise with an ever extending list of requests and features that often get shelved,” he explains. “And the long-term costs of maintaining a custom ERP can be prohibitively expensive, even while the custom solution is falling further behind over time. The reality is that the business environment changes and with it a company’s needs. This means that the ERP system has to be continually adapted. The result is that it’s very hard to meet the business’ objectives and achieve long term value.”
Modern COTS ERP systems utilise best practice technologies to provide significant breadth and a myriad of options around functionality which can be switched on when they are required, he points out.
“When you need additional functionality you just purchase the additional module. The functionality is immediately available making a modern COTS system surprisingly agile. A customised system, on the other hand, typically requires significant time, and budget, to design, develop, and test that additional functionality. An example would be where a product-focused company moves into providing services and finds that their custom software needs to be extended to support project management, resource management, and services billing. Turning on this functionality on a modern ERP and then configuring the modules will enable the company to rapidly change to support the business model change, where the development could take at least six months just to get the basics in place.”
Based on years of conducting ERP evaluations, facilitating selection processes, and shortlisting some key vendors such as Microsoft, Epicor, and Sage, Van Eck maintains that a key differentiator among them is the true cost of ownership over time.
“A truly modern ERP solution shouldn’t require expensive ERP consultants on site for the long term,” he says. “Companies should be empowered to take ownership of their ERP and they should be able to easily adjust processes and create new ones by dragging and dropping components – keeping abreast of changing needs, in most cases without requiring custom development.”
However, he concedes that there are times when a COTS solution won’t be viable. Obviously when there is no commercially available solution then one has to be developed. In addition, if a monopoly exists it may be more cost-effective to build since the lack of competition could protect inflated pricing. There may also be times when it could be possible to obtain a competitive advantage by developing a unique solution.
While ERP systems may be seen as a grudge purchase, implemented correctly, modern ERP systems will provide a strategic advantage and provide real value by keeping businesses agile and allowing for faster decision making, says Van Eck. “The competitive advantage it allows depends on how you configure it to enable your unique processes and how it enables you to proactively make more informed decisions.”
Build-or-buy is still not a simple choice and certainly needs significant thought, however with modern, configurable COTS ERP’s in existence it certainly tips the scales in that direction.