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The enterprise resource planning (ERP) system is a pillar of nearly every company’s record-keeping and management of business processes. It is essential to the smooth functioning of the accounting and finance functions. In manufacturing and distribution, ERPvr_Office_of_Finance_01_ERP_replacement also can help plan and manage inventory and logistics. Some companies use it to handle human resources functions such as tracking employees, payroll and related costs. Yet despite their ubiquity, ERP systems have evolved little since their introduction a quarter of a century ago. The technologies shaping their design, functions and features had been largely unchanged. As a measure of this stability, our Office of Finance benchmark research found that in 2014 companies on average were keeping their ERP systems one year longer than they had in 2005.

Recently, however, we have seen signs of change. The evolutionary pace of technologies that shape the design of ERP systems has been accelerating over the last couple of years. In addition to the cloud there are in-memory computing; analytics and planning integrated into transaction processing systems; mobility; in-context collaboration; and more intuitive user interface design. While ERP vendors generally acknowledge these innovative technologies, our research and conversations with ERP software users indicates that they are just beginning to make their way into product design and thus far have had little impact on the market.

Then there’s the buzz about “consumerized” ERP and other business applications – fresher designs that look and interact with the user like consumer software such as mobile apps on smartphones. Established screen layouts and process designs often are legacies of technology limitations that no longer exist. In addition, increasing numbers of users don’t want or need to interact with their business applications through desktop or laptop computers. Support for mobile devices has become common, but gestures and other new user interface conventions that expand and improve the ways in which users can interact with their system on other devices such as laptops are a likely future capability, especially as touch screens become common on all devices. Voice interaction, a potentially powerful advance, is still in its infancy. Notifications and approvals increasingly will be accessible from wearable devices and mobile technology watches. Since all business is collaborative, we expect in-context collaboration capabilities to evolve rapidly to improve productivity in every business function, enabling greater responsiveness to customers and speeding the completion of core processes.

vr_Office_of_Finance_20_finance_prefers_on-premisesDespite the growing popularity of cloud-based systems, the  issue of where ERP systems should reside is not settled. The cloud is likely to account for a substantial portion of the market. But it’s useful to remember that even though our research shows that resistance to cloud-based ERP is ebbing and that cloud ERP vendors’ sales have been growing faster than on-premises vendors, the cloud still has a small share of the installed base. A significant challenge for vendors of multitenant software as a service (SaaS) is that the key benefit is also a constraint. Because buyers configure the features and capabilities rather than customizing the core code base, implementations can be faster and less expensive. In issuing new releases or modifications to the software, the vendor makes those changes to the code that everyone is running, either immediately or after a grace period. This requires far less work for the customer than having in-house IT personnel update on-premises versions and patches.

The constraint, however, is that the software cannot be customized. As I’ve noted, the primary barrier to making ERP software more configurable is the inherent complexity of the business processes the systems manage. ERP systems must be able to handle the specific needs of users, which can differ considerably from one industry to another and even between specific micro-verticals that might span multiple business units in a range of industries, locations and jurisdictions. If the software cannot be configured to meet the customer’s feature, functionality and process requirements, and if the customer cannot adapt its operations to these limitations, a cloud-based product isn’t a feasible solution. Many manufacturing and product-centric businesses have found it difficult because their requirements are often too specific and diverse. Unlike with on-premises software, there is no option to customize multitenant SaaS offerings to the needs of a single customer unless the vendor is willing to make the necessary changes to the core code base and the timing of those changes is acceptable to the customer.

Some new supporting technologies will enhance the business value of ERP applications as companies adapt their business processes to take advantage of new capabilities. For instance, in-memory computing platforms and big data likely will change how organizations – especially in finance and accounting – work with computers. Processes can be executed faster, and transaction processing systems can include analytic capabilities. Increasingly, ERP vendors will incorporate performance measurement and monitoring as well as building optimization functionality into business processes.

In-memory processing promises a much more interactive experience while big data management will underpin the sophisticated use of analytics to develop actionable insights, alerts and performance measurement from the masses of data accumulating in ERP systems. Mobile technologies, ubiquitous among the new generation in the form of smartphones and tablets, will drive demand for the availability of on-the-fly analytics and dynamic planning to enhance forward visibility and deepen situational awareness to guide transaction processes. Similarly, the emerging Internet of Things (the network of physical objects embedded with electronics, software, sensors and connectivity to enable objects to exchange data with other connected devices) extends the possibilities for expanding the ERP system’s capabilities in automating the handling of physical assets and the associated record-keeping, analysis and process management.

It’s not just technology. Users of ERP systems are changing, and this is shaping ERP system design. Fresher screen designs and reduced screen clutter are some of the initial improvements. The demographic shift taking place in the ranks of senior executives and managers, from the baby boom generation to those who grew up with computer technology, is creating demand for software that is both more capable and more usable. Soon, to be competitive, ERP systems will have to deliver three major improvements: lower total cost of ownership, a better user experience and greater flexibility and agility.

Despite these growing demands concerning how it works, though, buyers’ expectations for what ERP software should do haven’t changed much so far. But change almost certainly will accelerate over the next five years. Companies’ selection processes are driven largely by their experience with the last generation of products and the pain points they experienced. They view these systems as notoriously time-consuming and expensive to set up, maintain and modify. Indeed, in our ERP research only 21 percent of larger companies said that implementing new capabilities in ERP systems is easy or very easy while one-third characterized it as difficult.

Unlike in the shift from mainframe financial and manufacturing management applications to client/server ERP, this time the larger incumbents will be less vulnerable to disruption. One important reason is that their large maintenance revenue streams provide greater development firepower compared to upstarts. Nonetheless, all vendors will be challenged in the market if they fail to evolve to meet the expectations of a new generation of executives and users. Smaller ERP vendors, whether mainly on-premises or cloud-based, will need to invest in enhancing their software at a faster pace than has been necessary over the past decade.

The ERP software market is poised for the first significant transformation since the 1990s and is the rationale for our new benchmark research we will conduct on this topic. A combination of new technologies and changing user demands will drive changes in system design. The result will be systems that are easier to use and easier to modify to suit the needs of customers. A new generation of users will demand software that makes doing their jobs easier, supports their ability to collaborate and work with the system anytime, anywhere. Change is coming slowly, but the landscape of ERP a decade from now will be very different.

Regards,

Robert Kugel
SVP Research

Tidemark Systems offers a suite of business planning applications that enable corporations to plan more effectively. The software facilitates rapid creation and frequent updating of integrated company plans by making it easy for individual business functions to create their own plans while allowing headquarters to connect them to create a unified view. I coined the term “integrated business planning” a decade ago to highlight the potential for technology to substantially improve the effectiveness of planning and budgeting in corporations, and it remains true that integrating business planning can produce superior results. Companies that maintain direct links between functional or departmental plans more often have a planning process that works well than others. Our next-generation business planning benchmark research shows that two-thirds (66%) of those that maintain such links have a planning process that works well or very well, compared to 40 percent that copy information from individual plans into an overall plan and just 25 percent in which plans have little or no connection.Integrated Planning Works Better

Businesses commonly do a lot of planning within individual silos: There are sales plans, marketing plans, manufacturing plans, R&D plans and various others. However, in most companies the only unified plan is the corporate budget, which is a financial plan used mainly for allocating resources and controlling spending. Because they are focused almost exclusively on monetary consequences, budgets are not especially useful for planning the operations of a company, which requires attention to the things of a business (such as head count, numbers of purchased parts and tons of materials).

Tidemark has made significant progress with its software that I have previously assessed with how it unifies business planning and the company’s Fall 2015 release includes a new feature, Tidemark Complete, that enables companies to benchmark their performance against that of competitors. In almost all organizations, performance reviews compare results against the current plan or the previous quarter or year. While this is essential, it’s insufficient because business is not an “us-vs.-us” game; it’s an us-vs.-them competition. Even so, most companies don’t assess their results against the market because they find it too difficult and time-consuming to assemble the data. Tidemark Complete addresses this issue. The latest release also adds packaged configurations and metrics tailored for the insurance, hospitality and retail industries that enable such companies to accelerate their implementation of Tidemark. In the Spring 2015 release the company introduced packages for higher education and subscription commerce. The subscription commerce app is especially useful for companies with recurring revenue businesses for two reasons. One is that managing these types of businesses requires using metrics that are not directly available from the accounting process. These include the annual recurring revenue (ARR) and annual and total contract value (ACV and TCV). Typically, the finance staff assembles data from one or more sources in desktop spreadsheets to do the calculations, analyze the results and create reports. As well as time-consuming, this method is prone to errors and incompleteness in the data. The second reason is that revenue recognition in subscription businesses is often complex. For planning purposes, it’s useful to be able to automate the translation of booking events into reported revenue because it saves time and results in more accurate projections of future financial statements.

Ventana Research rated Tidemark a Hot Vendor in our 2015 Business Planning Value Index. Tidemark’s software offers all of the capabilities necessary to support state-of-the-art planning. That is, it offers engaging visualization and reporting functionality that enhances understanding and insight in developing plans as well as communicating results. It has workflows to manage plan creation and periodic updates that cut the time and effort required to supervise the process and thus shorten planning cycles. It offers Business Planning Value Indexintegrated analytics to support the planning and review phases of the process as well as Storylines and Playbooks, methods that present an organization’s performance in narrative form with engaging data visualizations. An important reason why companies invest time in creating plans is to set objectives so they can periodically review their performance to those objectives. By organizing all business planning on a single platform, Tidemark allows each planning unit to review its results faster and headquarters to review the overall financial and operational performance sooner. Our research finds that companies that use a dedicated third-party planning application such as Tidemark are more able to uncover details during a review meeting because they can drill down to uncover underlying details while the meeting is under way. This enables managers and executives to get to information that can promote agility and provides an environment that encourages action in the whole organization.

Tidemark also offers built-in social collaboration capabilities in context. Collaboration is essential in the process of planning in corporations because it helps ensure that activities are coordinated. Companies have multiple objectives for their planning processes. Chief among these is accuracy. But since things don’t always go to plan, companies need agility in responding to changes in a timely and coordinated fashion, and collaboration facilitates this also. In a small business, planning can be informal because of the ease of communications between all members and the ease with which plans can be modified in response to changing conditions. In larger organizations the planning process becomes increasingly difficult because communications become compartmentalized locally and diffused across the enterprise. Facilitating collaboration across geographies or business silos addresses the communications issues. Tidemark’s Collaboration is Important to Planningcollaboration capabilities address this issue more readily and completely than email or instant messaging. Setting and changing the company’s course require coordination to ensure that the actions of one part of the organization complement (or at least don’t impede) the actions of others. Better communication across the organization promotes coordination because it enables better understanding of the impact of policies and actions in one part of the company on the rest of it. Yet only 14 percent of companies are able to accurately measure that impact, and fewer than half (47%) have even a general idea. Integrated business planning coupled with a collaboration capabilities addresses that issue.

Using the most capable technology also helps. Using limited tools is a major barrier preventing companies from integrating their planning efforts; spreadsheets in particular are a major Spreadsheets in Planningculprit. Our research reveals that across the spectrum of corporate planning activities, seven out of 10 organizations use spreadsheets to manage their planning processes. Tidemark’s common planning platform for individual departmental and functional plans, plus built-in analytics and reporting and its focus on ease of use, provides a compelling reason to switch from spreadsheets. Also, compared to using spreadsheets, Tidemark’s applications can make the planning process far more interactive by utilizing in-memory processing to speed calculations. When even complex planning models with large data sets can be run in seconds or less, senior executives and managers can quickly assess the impact of alternative courses of action in terms of their impacts on key operating metrics, not just revenue and income. Furthermore, having the means to engage in a structured conversation with direct reports can help executives implement strategy and manage their organization more effectively.

Integrated business planning applications are changing the conversation from a finance-centric approach to one that supports planning operations and finance in parallel. Companies that are dissatisfied with their current approach to business planning and are looking to improve important aspects of it including accuracy, insight, speed and alignment should consider dedicated business planning tools. When they do that, they should consider the kind of software that will enable them to support a better process. We recommend that they include Tidemark in their evaluation.

Regards,

Robert Kugel – SVP Research

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