Published on the 31/01/2023 | Written by Heather Wright
Renovation and rightsizing of ERP key for 2023…
Australian and Kiwi organisations are increasing their investment in renovating and rightsizing of ERP systems which are often being seen as a ‘rescue’ technology that can support pressing priorities across the enterprise.
Neha Ralhan, Gartner senior principal analyst for ERP strategy, says ERP did a lot of heavy lifting during Covid and now it is increasingly going to be expected to do more with a possible economic downturn.
“The concept of rightsizing could be a valuable option for a range of different organisations.”
“With the concept of ERP rescuing the organisation, it really is about either marginal gains and optimisation that we haven’t seen before or that organisations haven’t done before, that allow for greater day to day operational and tactical focus within the organisation,” Ralhan told iStart.
“That could be greater recruitment and retention via the HCM within the ERP for example,” she says.
Rather than a wholesale change, or big upgrade, many organisations are looking to reconfigure their existing ERP, which is already functional but perhaps not optimised, to better meet changing demands or work processes in what Ralhan calls a rightsizing approach to ERP systems.
It’s a tactic already seen during Covid when some organisations took advantage of possible lower demand for customisation to focus on the relative quick wins to be gained by configuring for example new order management processes, as opposed to making changes to core functions.
New transformative features that turn standard issue upgrade projects into new implementation journeys is helping drive the move, along with businesses becoming increasingly savvy and strategic in their ERP journeys.
“If we are going to weather economic headwinds, the concept of rightsizing could be a valuable option for a range of different organisations, whether the big end of town or medium organisations, and increasingly government and public sector organisations as well,” Ralhan says.
“It’s about matching the ERP and what is happening with the ERP to the overarching business strategy and also market conditions, and it will prevent backtracking once things become more sure-footed as well,” she says of the concept of rightsizing.
Rather than being about saving money, Ralhan says rightsizing, and the idea of ERP as a rescue technology, is about making smarter investment decisions.
“They’re decisions you don’t necessarily have to backtrack on, decisions that are scalable whether up or down, and decisions that are relevant.
“It’s about investing in the functionality you require, optimising what you may or may not have and then that feeds into the larger scale like organisational priorities. And by doing that you would be able to gain a competitive advantage or maintain a competitive advantage you have gained in the last few years.”
While rightsizing is a part of the renew program an organisation can do for their ERP, it contains the concept of rationalising – justifying current plans and evaluating options before moving forward and reconfiguring. (The renew program can also include a ‘supersize’ approach – a bolder, big bang approach focused on innovating and expanding. “Most organisations can’t benefit from that radical change during uncertain times,” Ralhan notes.)
“[Rightsizing] is really about focusing on the minimum viable steps to keep a-pace with business needs for their ERP. So no big sudden moves.”
While many are looking to rightsize, others are looking to composable ERP, which delivers a core of composable applications and as-a-service software platforms that are highly configurable, interoperable and flexible to adapt to future modern technology and changing business needs.
Gartner is forecasting 30 percent of Australian and New Zealand organisations to make the jump to composable by 2026 as they seek increased agility and flexibility. It’s an option that also has the effect of avoiding single vendor ERP focus paralysis which Ralhan says is a ‘huge’ historical aspect of the local ERP market.
“It’s important to note that with ERPs you often can’t make big sudden changes. So, 30 percent in the next three years still has a significant shift in mindset that is really required for ERP,” she says.
For companies looking at composable, Ralhan says a key focus is to evaluate their transitional needs – what they need today, what is needed in the future and critically, the gap that exists.
“If we’re being pragmatic, we really need to focus on transitional cost and the associate benefits from the vendor itself.
“And also, if you’re going down the composable approach, it’s not the time to restrict your options or limit your vendors – think big!
“A lot of the time with composable it really is about the strategy, the design and the governance practice as opposed to the technology, so it’s more focusing on the strategy and going from there, than moving on to the technical aspects.”
Another growth area for the Australian and New Zealand ERP market comes with an increasing sustainability push. Ralhan says sustainability – or ESG more widely – and the ERP are becoming more intertwined.
“A lot of end user clients are looking more closely at ERP vendors, their credentials and sustainability – whether that is environmental sustainability standards or just ongoing value. That is definitely happening more.”
When it comes to using ERP systems for sustainability, Ralhan admits local organisations are not particularly advanced and are largely just using data from the ERP to report on ESG standards.
“That could be linked to supply chain or more about reporting analytics at the moment.
“And while you could say, ‘well that’s just standard, it’s just data’, it feeds into the wider sustainability vision some organisations do have, and are increasingly required to have, whether because of government rules and regulations or other parts of their ecosystem such as employees requiring that transparency.
Gartner is forecasting that 40 percent of organisations will start their primary reporting of ESG via their ERP systems by 2026.
So what are Ralhan’s three tips for A/NZ businesses around ERP strategy for the coming year?
- Re-evaluate your alignment of business and IT goals and make sure they are part of the ERP strategy design.
- Be pragmatic. Is now a time for a wide-ranging ERP project? Or is now the time to optimise what you have?
- Focus on the vendor and forging a true partnership. That means asking plenty of questions of your vendor and ensuring you’re in the driver’s seat in the engagement.
