Most established enterprise resource planning (ERP) investments fail to deliver the agility, adaptability, and intelligence essential for the current dynamic business environment and the elevated expectations of customers. A fresh wave of ERP solutions offers a more flexible, AI-driven, and user-focused experience. Enterprises must transition to these contemporary ERP solutions to optimise outcomes.
The Inadequacy of Legacy ERP Systems in the AI Era
Operating outdated ERP systems hampers business flexibility and performance. These older, generally non-cloud solutions:
- Operate at a sluggish pace, unsuitable for the rapid and unpredictable nature of modern business. Today’s enterprises must swiftly adapt to evolving competitive, economic, and customer landscapes. Older ERP systems are too rigid to facilitate such quick adjustments, hindering the evolution of business processes. Conversely, contemporary systems are more modular and adaptable, thanks to low-code platforms and marketplace add-ons that expedite changes. For instance, an industrial manufacturing company we consulted required a quicker time-to-market for its B2B products to meet customer demands. By upgrading to a more modern and industry-specific core, the company could gather valuable data from IoT sensors, identify patterns, and accelerate job costing and manufacturing processes to meet growth and customer objectives.
- Lack the automation and AI capabilities necessary for optimal outcomes at scale. Modern business leaders need to swiftly measure success and make informed decisions to ensure profitability and growth, even with limited resources. Contemporary ERP systems provide the AI and insights needed for superior decision-making and a cloud platform capable of supporting large-scale operations. For example, AI pioneer Cohere employs NetSuite to streamline operations and enhance business decisions. NetSuite’s built-in AI allows the company to close its books faster and gain clear financial insights. Its flexible software-as-a-service (SaaS) model supports easy scalability, which is crucial for high-growth scenarios. The company leverages AI to refine decision-making, which continually improves through NetSuite’s regular update cycles.
- Become increasingly expensive, risky, and challenging to operate. Supporting older ERP systems places a significant burden on the customer organisation. Many skilled ERP professionals have transitioned to modern systems, while those proficient in older systems are retiring, making it difficult to find the right expertise. We've observed instances where retirees are called back to support outdated systems like PeopleSoft. Some vendors are deliberately increasing support costs for older systems to encourage customers to adopt their new cloud-based products, which offer frequent updates for enhanced security and functionality. For example, a large retailer we consulted uses hundreds of antiquated systems, including some proprietary ones that are hard to maintain. The complexity makes it difficult to obtain insights and perform basic business operations. This company plans to transition to a new, cloud-based system to modernize and simplify their complex, hard-to-manage landscape, allowing employees to focus on more strategic tasks.
Challenges in Modernising ERP Systems
In Forrester’s Software 1 Survey, 2023, only 22% of global software decision-makers whose firms are adopting business management software report primarily deploying it with multitenant SaaS; 32% state they still primarily deploy it on-premises. The ERP market has been one of the slowest to modernise significantly over the past two decades because:
- Firms have been slow to acknowledge the impact ERP has on customer outcomes. More software decision-makers report that their firms focus software strategies and investments on customer experience rather than on departments responsible for operational systems and processes. This is a mistake because operational systems impact customer outcomes and can hinder them. One utility firm we spoke with aimed to launch a more engaging customer platform, and its business executives were proceeding rapidly until the tech team informed them that their vision was unattainable on their legacy core.
- ERP buyers are typically more risk-averse than other executives. ERP’s primary users are usually finance, operations, and manufacturing professionals who have minimal or no direct links to customers. Due to their focus on finance and operations, they rightly fear that disruptions in their systems could cripple the enterprise. An executive at an industrial manufacturer expressed concern about changing technology and business processes simultaneously, as it seemed like too much change at once for his thousands of users.
- ERP vendors have been slower to innovate. In other markets like CRM or HR, major disruptors (such as Salesforce or Workday) introduced new approaches to software based on cloud, experience, and innovation, quickly making these markets SaaS-centric. However, in core enterprise systems like finance or supply chain, the shift to cloud has been much slower. Several major ERP and supply chain vendors are only now making a genuine push towards SaaS.
The survey reveals respondents’ answers to the question: ‘As your organisation considers its software strategy and investments, which departments or business groups is it focusing on the most?’ The top answer was IT/technology (34%). This graphic is accompanied by a spreadsheet that includes all the presented data. Please refer to the spreadsheet for details.
Business Requirements and Next-Generation Technology Propel the Modern ERP Era
Business leaders in finance and operations require robust ERP systems that are resilient, secure, and scalable. They also wish to leverage new innovations in areas like AI and other modern technology paradigms (e.g., edge computing, blockchain, digital twins), which are difficult to achieve with their outdated legacy ERP systems.
Modern ERP: Flexible, AI-Driven, and Easily Accessible
Just as digital experience platforms enable organisations to streamline the creation, orchestration, and optimisation of experiences across touchpoints, an ERP system must support all processes and touchpoints beneath the customer’s visibility.
Flexible to meet rapidly changing business needs. Some organisations still operate significant parts of their businesses on outdated technology, such as '90s-era ERP or even COBOL systems, which are brittle and challenging to modify. Modern ERPs utilise the cloud, enabling business agility with decoupled microservices-based architectures, innovation that keeps technology “evergreen” (with less challenging upgrades), and low- and no-code platforms that support business-led development and marketplaces.
AI-driven for efficiency and innovation. From Oracle’s Adaptive Intelligent Apps to SAP’s Intelligent Enterprise, AI is a cornerstone of modern ERPs. AI enhances efficiency (automating mundane but critical tasks like the financial close process) and fosters innovation (making products smarter). IFS incorporates algorithms for predictive maintenance; Plex Systems invests in machine learning and analytics to reduce production downtime; and Unit4 focuses on financial process automation. We are only at the beginning of the transition to AI-driven enterprise applications. Project ERP specialist Deltek analyses project health using aggregate data from over 50,000 projects — a competitive advantage when users have access to vast amounts of data but limited insights.
Easily accessible for interactions beyond traditional interfaces. Modern ERPs provide multiple interaction methods, extending beyond browsers and apps. Key new features include gesture-based, mixed-reality, and voice-enabled touchpoints.
