Gartner outlines A/NZ ERP strategies

Published on the 11/07/2024 | Written by Heather Wright

Market moves with tighter times…

Local organisations are taking a tightly controlled approach to generative AI in ERP as they seek sustainable, long-term pragmatic approaches to the technology.

“We’re not seeing anyone transform their organisation with generative AI and ERP – it’s just not happening in this part of the world,” Neha Ralhan, Gartner’s Sydney-based senior principal analyst for ERP strategy, told iStart.

The concerns around ERP and generative AI of 18 months ago have largely subsided, and Australian and New Zealand organisations are ‘a bit more excited by it, but in a more controlled fashion now and we’re going to see more of that as the vendors also champion that change’, Ralhan says.

“We’re not seeing anyone transform their organisation with generative AI”

But the local market is currently a ‘two speed ERP economy’, split between organisations who have strong ERP systems, governance and architecture, and are able to integrate generative AI and everyday AI and play with it more, and those who are struggling to tap into the new technology because of the general structure of their existing ERP.

Ralhan says the Australian and New Zealand market is seeing something of a lull in action when it comes to ERP. That’s in part because organisations have done a lot of work in the last few years and are now bedding in that work. But the current economic environment is also playing a part, with Ralhan saying for some organisations, its currently too tricky to navigate larger transformation projects – and ERP will always be one of those.

Generative AI and everyday AI, however, are likely to drive new action, with use cases ‘becoming stronger almost every week’.

A recent Gartner Generative AI Use-Case Comparison for Cloud ERP maps out those use cases based on their value to organisations – measured across cost reduction, efficiency gains and risk limitation – and feasibility, both technical and organisational.

“The hype around generative AI is at a peak and ERP vendors are responding to this by really bedding down their use cases across a variety of areas,” Ralhan says.

Where previously the focus was primarily in financial, she says generative AI is spreading its wings within ERP – something she says is ‘a very promising sign’.

All of the main cloud ERP vendors have, or have indicated future roadmap releases incorporating the technology, but to date, only a very limited set of use cases have been released, Gartner says.

Among the use cases Ralhan says have the greatest value in the short term are those around accounts payable, invoice automation, spend analysis, finance balance, reconciliation and cash collections on the financial side. But beyond financial, there’s opportunity in digital assistance via chatbots which might be embedded within the ERP or external to the ERP; and order fulfilment.

Low code generation is a ‘likely win’ – but Ralhan says at the moment it’s not featuring as prominently as the other use cases.

There are also use cases that will need closer management, including interview summation, contract generation, compliance and risk monitoring and performance feedback.

Ralhan is urging local organisations to get focused and tailored with any genAI ERP work.

“Don’t aim to do all the functionality.

“If you’re an organisation interviewing lots of candidates or with a large recruitment drive, focusing on the HCM function may be of greater value than focusing on finance, while for others it may be the finance piece and for others still it might be using generative AI for some of the reporting around ESG for example.”

Ralhan says across A/NZ there’s been an uptick in third party support around ERP. That’s something she ties back to deadlines set by vendors as their offerings reach end of life, and also to organisations keen to avoid big financial spend in the current environment.

“It’s being used as a cost saving mechanism by some,” she says.

But it’s also being used by organisations who are happy with their existing ERP and are rebelling against being pushed onto new iterations which may offer little advantage for them, particularly in the case of highly customised or more niche-based organisations and industries.

“A lot of organisations have put a lot of effort into their ERP. While there might be a percentage who are looking to sweat the asset, without a doubt, some are just content – their ERP works for the current iteration of their organisation and they don’t see the value or the use case for the next iteration. So the third party support model is more of a pragmatic way to continue their current ERP journey,” Ralhan says.

She notes that it remains to be seen if this is a longer term trend, or just a reaction to current economic issues.

She cautions however, for local organisations to be wary of financial complications, particularly with penalties which they may face from vendors further down the track.

Attempting an upgrade with a vendor further down the track – we’re looking at you SAP – could prove expensive.

A/NZ organisations are also looking more to their ERP systems to help with sustainability.

“Organisations have increased scrutiny from shareholders, governments, stakeholders, regulators, the whole shebang, and they’re seeking software solutions to underpin their data collection and sustainability efforts. ERP is ripe for that data.”

It’s not just about collecting the data either, she notes. “It’s also the next step to optimise any decision making, to optimise the organisation and their core functionality around ESG.

“What’s really interesting now about ERP vendors is that they are tailoring a lot of their ESG functionality to specific industries.”

While that makes it a more compelling argument, it comes with its own challenges as, similar to generative AI, it is often not well supported for legacy applications and architecture.

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