Are Emerging Trends in ERP Flattening Industry Verticals?
One of the most appealing features for purchasers of ERP software is industry best practices. Executives are often more inclined to spend millions of dollars on new enterprise software initiatives when they have the comfort of knowing that others in their industry vertical have spent countless years developing those best practices and navigating related lessons learned. In fact, these repeatable and proven business processes and software capabilities designed for their industries are what executives are really buying when they procure new ERP software.
On the other hand, executives are also likely to leverage ERP trends that transcend their respective industries. Mobility, business intelligence (BI) and SaaS ERP are just a few of the trends of interest to CIOs in industries including manufacturing, government, financial services and health care. In these cases, industry focus doesn’t necessarily matter. In addition, executives are often keen to leverage best practices outside of their respective industries as a way to benchmark to other industries that may have better ways of running their businesses.
Given this contradiction, the consolidation of ERP vendors and growth across multiple verticals begs an important question of recent trends in ERP: how relevant is it for ERP software to focus on a specific industry?
The answer to this question boils down to three key points:
There are too many ERP vendors to not have some sort of industry focus
Ten years ago, there were only a handful of viable ERP software providers, so industry focus wasn’t extremely important. Today, however, there are hundreds of options and ERP vendors need to do something to differentiate in the midst of stiff completion. This leaves most software vendors with two primary strategies: focus on function or focus on industry. Vendors such as Salesforce and Workday have taken the former approach by focusing on Customer Relationship Management (CRM) and Human Capital Management (HCM) software, respectively, while other vendors have focused on specific industry verticals or niches.
Aside from back office functions, most industries are different
Industry focus may not be important to companies that leverage ERP software primarily to automate back office functions such as accounts payable or general ledger. However, industry distinction and capability is especially important for companies leveraging software to automate their front- and back-end business processes. As different organizations deal with the relatively unique nature of configuring their products, forecasting demand, and fulfilling manufacturing business processes, industry focus becomes increasingly important. Even in cases where buyers choose ERP software tailored for their industry, executives are still likely to find the need to customize the software to accommodate unique competitive advantages that can’t or hasn’t been replicated by others yet (see diagram below).
The “everything to everyone” approach is constantly creating industry niches for vendors
While ERP vendors such as SAP, Oracle and Infor grow aggressively through acquisitions of smaller solution providers and by servicing the needs of multiple industry verticals, smaller ERP vendors are constantly finding ways to service specific niches better than the larger players. For example, Plex Systems has carved out a nice niche servicing the automotive industry, while JustFoodERP has built a unique industry solution for food manufacturers and distributors – two industries with unique business process and operational niches that are completely different from verticals such as government or banking. For each vendor that tries to be everything to everyone, at least one more will sprout up to try out-competing those same vendors in specific areas.
So what’s the right answer? Unfortunately, there is no single answer. Some larger, more diverse organizations with higher complexity find that only SAP or Oracle will support their diverse needs. This same breadth and flexibility may not be as important to a more narrowly focused organization, so the niche vendor may be more likely to appeal to them. Some fall somewhere in between, in which case a vendor such as JustFoodERP – with its food and beverage focus using a product built on the Microsoft Dynamics platform – gives them the best of both worlds.
The only way to find the right answer is to fully define and prioritize your business needs and requirements and objectively evaluate all of your options until you find the best solution for your organization. It’s easier said than done, but it’s what we do for our clients every day.
[This post originally appeared on the Panorama blog and is republished with permission.]
Looking for more information on enterprise platforms or ERP software trends? Check out our side-by-side comparison of leading platforms in the Top 20 ERP Software report. You can also browse exclusive Business-Software.com resources on ERP trends and best practices by visiting the ERP research center page.