ERP vendors are getting a 'good kick' from users

Users are increasingly replacing parts of ERP systems with SaaS and BPO, says Gartner

The era of the monolithic, highly customized enterprise ERP system is fading, according to Gartner.

Enterprise customers are replacing some ERP functions with SaaS, business process outsourcing, and best-of-breed applications, Garter analyst Andy Kyte said in an interview. He is one of the authors of a report describing "The Rise of the Postmodern ERP."

In Kyte's view, ERP vendors have not been innovating and are instead resting on steady customer revenue. Meanwhile, the market has been energized by the emergence of SaaS vendors, in particular, who are now competing directly with ERP vendors.

That shift is prompting ERP users to consider the fate of heavily customized, expensive, poorly documented and difficult-to-change ERP systems that may bear no resemblance to the ones they originally purchased.

In an effort to reduce cost and burden, users are adopting a new class of SaaS applications that are modern and innovative. Human resources is a particular target, and the new SaaS offerings "reflect the current state of thinking in HR," said Kyte.

Managing payroll in ERP can be very expensive, and users are shifting to BPO instead for payroll and accounts payable.

Increasingly, customized ERP systems will be the labeled "legacy" systems, said Gartner.

This trend "represents a competitive kick in the butt for the ERP vendors," said Kyte. "Overall, the buyers will be the winner."

Gartner is not predicting that people will move away from their ERP systems entirely. There are lots of effective applications in ERP portfolios, and integrating alternatives is not necessarily a barrier, said Kyte.

Within five years, Gartner expects hybrid ERP environments to be the norm, with significant elements of functionality shifting to the cloud.

Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed. His e-mail address is pthibodeau@computerworld.com.

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