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November2016

THEVALUEOFAGILITYINERPDURINGDISRUPTIVETIMES

Fitandfunctionalityhasalwaysbeenthelinchpininselectingsoftwarethatrunsyourbusiness.WhencompaniesareaskedtostackrankthepriorityofselectioncriteriaforEnterpriseResourcePlanning(ERP)solutions,thisisclearlyatthetopoftheleaderboard,followedcloselybycompletenessofsolution.Whilefeaturesandfunctionsareindeedimportant,thereisdangerinmakingadecisionsolelyonwhatyouneedtoday,becauseitmightnotbewhatorallthatyouneedinthefuture.

The2016MintJutrasEnterpriseSolutionStudyfound88%ofcompaniesbelievetheyfacesomelevelofriskintheirbusinessesand/orindustriesbeingdisruptedbynewinnovativeproducts,newwaysofsellingorpricingexistingproductsorservices,entirelynewbusinessmodels,orsomecombinationofalloftheabove.Andthenofcoursetherearestillthemoretraditionaldisruptivefactorslikeexpansionandgrowth,organizationalrestructuringandregulatorychanges,justtonameafew.

Allthisdisruptioncanhaveacascadingimpactonbusinessapplicationrequirements,makingagility-theabilitytoeasilyinnovate,evolveandchange-evenmoreimportantthancurrentfunctionality.Howwellpreparedareyoufortheunpredictable,yetinevitabledisruptiveforcesofthedigitaleconomy?Afterall,weliveinverydisruptivetimes.

DISRUPTION?WHATDISRUPTION?

Weaskedsurveyparticipantsinour2016MintJutrasEnterpriseSolutionStudytoestimatethelevelofrisktheyfaceintheirindustry(andthereforetheirbusiness)beingdisrupted(Figure1).

Figure1:Howmuchriskdoyoufaceinyourindustrybeingdisrupted?

Source: Mint Jutras 2016 Enterprise Solution Study

Data Source Inthisreport,MintJutrasreferencesdatacollectedfromits2016EnterpriseSolutionStudy,investigatinggoals,challengesandstatusandalsobenchmarkedperformanceofsoftwareusedtorunabusiness.

Over525responseshavebeencollectedintotal,fromcompaniesacrossabroadrangeofindustries,includingcompaniesofallsizes,rangingfromverysmalltoverylargeenterprises.

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Whileonly10%feltthatriskwashighand/orimminent,most(88%)dounderstandtheriskisreal.Whileaboutoneinthree(34%)feeltheriskislow,wehavetoask:HowdoyouthinkthetaxiindustrymighthaveansweredthisquestionontheeveofthelaunchofUber?DoyouthinkthehotelindustryanticipatedAirbnb?DidBlockBusterforeseethedevastatingimpactNetflixwouldhaveonitsbusiness?Whatkindofdisruptionislurkingoutthereforyou?

DIGITALDISRUPTIONTheInternetandthedigitaleconomymadeallofthesedisruptionspossibleandnoneweredecadesinthemaking.Comparedtoslow,evolutionarychangesofthepast,theyliterallyhappenedalmostovernight.

Thistypeofdisruptionmightcomefromavarietyofsources.Weaskedsurveyparticipantstoselectthesinglemostlikelycauseofpotentialdisruption(Figure2).

Figure2:Whatismostlikelytocausethisdisruption?

Source: Mint Jutras 2016 Enterprise Solution Study

Whilethethreatfromnew,innovativeproductsmayhavethelesserdisruptiveimpactonbusinessprocessesandbusinessmodels,itdoesrequirecompaniestoplacemoreemphasisoninnovation.Windowsofopportunitycanopenandcloseveryquickly.OfcourseanagileERPsolutionisn’tallyouneedtoacceleratenewproductintroductions,butyoualsodon’twantittobethereasonyoucan’trespondtonewmarketdemandsortakeadvantageofnewandunprecedentedopportunities.

Newwaysofselling/pricingexistingproductsmightincludesubscriptionstoservicesoroutcomesthatreplaceoutrightsaleofproducts.Ratherthansellingamachine,youmightinvoiceforuptimeorhoursofproduction.Youmightshipaphysicalproductforfreeandchargeforusageand/orconsumables.Softwarecompaniesthatusedtoofferperpetuallicensesmightnowalso(orinstead)offersubscriptionstosoftwareasaservice(SaaS).Thesetypesofchangescanhaveamajorimpactonhowyouinvoice,recognizerevenueandmanagecash.AndthesechangesmustbereflectedinyourERPsolution.

HowdoyouthinkthetaxiindustrymighthaveassessedthethreatofdisruptionontheeveofthelaunchofUber?DoyouthinkthehotelindustryanticipatedAirbnb?DidBlockBusterforeseethedevastatingimpactNetflixwouldhaveonitsbusiness?Whatkindofdisruptionislurkingoutthereforyou?

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Theimpactofentirelynewbusinessmodelsisevenhardertopredictbecauseoftheinherent“newness.”Youdon’twantyourERPsolutiontobethereasonyoucan’tcapitalizeonthatbrilliantnewideathatcancreateanewrevenuestream.YourERPmustadaptasyourbusinessevolves.

Andifyouarelikeoneinthree(33%)ofoursurveyparticipants,youexpectchangetocomefromacombinationofthesedisruptivefactors,whichisevenhardertopredict.Youmustcontinuetosupportyourcurrentrevenuestreamsinconjunctionwiththesenewopportunities.

DON’TFORGETTHEMORETRADITIONALDISRUPTIONDisruptionisnotentirelyneworexclusivelytheresultofthedigitaleconomy.Growthandregulatorychangesareperhapsthetwomostcommoncauses.Howeverwhilenotexclusivelytheresultthereof,growthisinfactimpactedbythedigitaleconomy.TheInternethasleveledtheplayingfieldforglobalization.Innovationandadvancedtechnology,combinedwiththeInternet,haveopeneddoorstoopportunitiesallaroundtheworld.Newconsumermiddleclasseshavesprungupincountriesthatwerehardlyindustrializedashortdecadeago,creatingunprecedentedgrowthopportunities.Butwindowsofopportunitycancloseasquicklyastheyopen.

Totakeadvantageoftheseopportunities,youmightexpandintonewterritorieseitherorganicallyorthroughmergersandacquisition,bothofwhichcancausedisruptionthroughouttheenterpriseandplacenewrequirementsonfinance,accountingandcompliancereporting.Thismayalsoresultinorganizationalrestructuring.Ifyourorganizationalandreportingstructureisstillhardcodedintoyourchartofaccounts,youareseverelylimitedinhowandhowquicklyyoucanrestructure.

WhetherchangeisinitiatedbygrowthorbythefactorsshowninFigure2,theseinturn(orindependently)cancausechangestoaccountingmethodsandreportingrequirements.Achangeinaccountingmethodmightbemadeatthediscretionofexecutivemanagement,butmoreoftenisimposeduponanenterprisethroughnewlawssuchasthoseintroducedin2002withtheSarbanes-OxleyActandtheconvergenceofstandardsandreportingrequirementsofInternationalFinancialReportingStandards(IFRSs)andUSGeneralAcceptedAccountingPrinciples(GAAP).

Themostrecentandmostsignificantofthesearetheupcomingchangestorevenuerecognitionasaresultofthemergingofaccountingstandards(ASCandIFRS).ThisplacesnewfunctionalrequirementsonERPandrequiredchangestoexistingaccountingsoftwarearenotinsignificant.Thesenewruleshavethepotentialofcreatingthemostsignificantchangesaccountantshavefacedinmany,manyyearsandapplytoanycompanythatentersintocontractswithcustomerstotransfergoodsorservicesorforthetransferofnonfinancialassets.Withthetrendtowardsasubscriptioneconomy,therearefewerandfewercompaniesthatareimmune.

ASC 606 and IFRS 15 InMay2014,FASBissuedAccountingStandardsUpdate(ASU)2014-9,RevenuefromContractswithCustomers(Topic606).AtthesametimetheInternationalAccountingStandardsBoard(IASB)alsoissuedInternationalFinancialReportingStandards(IFRS)15,RevenuefromContractswithCustomers.Indoingso,thesetwogoverningbodieslargelyachievedconvergence.Theseconvergedstandardsforrevenuerecognitiongointoeffectthebeginningof2018forpublicentities,bringingverysignificantchangestofinancialstatementsandreportingforanycompanydoingbusinessundercustomercontracts.

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DREADEDBUTINEVITABLECUSTOMIZATION

Companiescannolongeraffordtorespondtothesetypesofchallengesliketheyusedto.Indaysgoneby,companieswereforcedtohandlethiskindofchangeinthesamewaytheyhadalwayshandledgapsinfunctionality:throughcustomizationofthesoftware.Inthepastcustomizationwasinvasive;itmeantmuckingaroundinsourcecode.Notonlywasthisacostly,lengthyandtime-consumingprocess,italsocreatedbarrierstoupgrades.Butinnovationisfarmoreimportanttodaythanithaseverbeen.Businessconditions,processesandevenentirebusinessmodelsaremuchmorefluidthaneverbefore.Nocompanycanaffordtostagnate,norcantheyaffordlongleadstimestoimplementchange.

Thisisexactlywhymodern-dayERPsolutionshavebecomemuchmoreconfigurable,allowingyoutopersonalizeandtailorthesolutiontoyourindividualneedswithoutcostlyandinvasivecustomization.Weaskedour2016EnterpriseSolutionStudyparticipantstocheckoffallthedifferenttypesof“customization”theybelievetheyneed(Figure3).Keepinmindthatmostanychangetothesoftwareortheuserexperienceistypicallyreferredtoas“customization.”

Figure3:Whattypeofcustomizationdoyoubelieveyouneed?

Source: Mint Jutras 2016 Enterprise Solution Study

Therearetendifferenttypesof“customization”listedinFigure3.Theyaresortedbythelikelihoodofthembeingrequired.AnymodernERPworthitssaltshoulddeliverthefirstsevenofthesewithoutrequiringanyinvasivecodechangesandwithoutbuildingbarrierstoconsuminginnovation.Thenexttwomayormaynotrequirecodechanges.

“Customization” Manymodern,technology-enabledERPsolutionstodaydeliverahighlevelofpersonalizationandconfigurationwithoutcustomizationasdefinedintheclassicsenseofinvasivecodechanges.

Nocompanycanaffordtostagnate,norcantheyaffordlongleadstimestoimplementchange.

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Ifyourcurrentsolutiondoesnotallowyouto“customize”throughthistypeofconfigurationandtailoring,if“customizing”preventsyoufromconsuminginnovation,adaptingtobusinesschangeorrespondingtonewbusinessornewbusinessmodels,youneedanewone.It’sassimpleasthat.

Respondingtothelastrequirement-developingentirelynewfeaturesandfunctionsthatareunlikelytobeavailableincommercialsoftware-isadifferentstory.Ifyoudoindeed(really)requirethis,itislikelybecauseyouseektoclearlydifferentiateyourselfinyourmarket.Andthat’sagoodthing.Buthowyougoaboutaddingthatfunctionalitycanleadyoudownapathofstagnation,orapathtogrowthandprosperity.

INNOVATIONTHATISEASYTOCONSUME

AddingnewfunctionalitytoERPinawaythatmakesiteasytoconsumehaslongbeenachallenge.TheverydefinitionofERP(atleastthedefinitionaccordingtoMintJutras)contributestothischallenge.MintJutrasdefinesERPasanintegratedsuiteofmodulesthatformstheoperationalandtransactionalsystemofrecordofabusiness.ThisisarudimentarydefinitionbecausetodayERPislikelytodomuchmorethanthis.

NotonlydoallmodulesofanERPsolutionshareacommondatabase,butalsoallaredevelopedusingthesametoolsandtechnologyandtraditionallytheyallmoveforwardinlockstep.Thiseliminatesdataredundancyandanyneedforseparateintegrationefforts.Andacommonplatformfordevelopmentisbeneficialtoboththecustomerandthevendor.

WhennewfeaturesandfunctionsareaddedtoERP,eitherasgenerallyavailableinnovationorasacustomization,thistightintegrationimpliesthatallmodules,allfunctions,andthereforealldepartmentswithinanorganizationmustmoveforwardtogether.Thiscanslowdowntheupgradecycle(orinthecaseofcustomization,preventit),butevenmoretroublesome:Ittakesmassiveeffortsofcoordinationforalldepartmentswithinacustomer’sorganizationtotakethosenextstepsalltogether.Andallmightnothavethesamelevelofmotivation.

Sowhat’sthealternativetothistightintegration?Thealternativeisoftenreferredtothesedaysas“looselycoupled,”butthatterminologyfrequentlyconjuresthe“bestofbreed”approachofyesterday,whereyouhadindependentpointsolutionsthatneededtobeinterfacedorintegratedbackintoERP.We’renotadvocatingtakingastepbackwards.Perhapsabetterwayofdescribingtheneweralternativewouldbe“component-based”or“service-based.”

Whenitcomestimetoofferupnewfeaturesandfunctions,insteadofinsertinglinesofcodedirectlyintoERP,youmightinsteadcalluponastandard“service.”Whenitcomestimetoupgradeoraddnewfunctionality,simply

Definition of ERP MintJutrasdefinesERPasanintegratedsuiteofmodulesthatformstheoperationalandtransactionalsystemofrecordofthebusiness.Thisdefinitionallowsforsomeflexibilityintermsofmodulesrequiredsincedifferenttypesofbusinesshavedifferentneedsandtypicallymanufacturerswillrequireamorecomprehensivesetofmodules.Inaddition,thefootprintofmostestablishedERPsolutionshasgrownsignificantlyandprovidesmorefunctionalitythanneededforthiscoresystemofrecord,oftenmakingupgradesharderandmorecomplex.

Ifyourcurrentsolutiondoesnotallowyoutorespondtonewbusinessornewbusinessmodels,youneedanewone.

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swapouttheold“service”forthenew.Youmightalsoviewtheseservicesasexternalcomponents.Whilethisisanoversimplification,itconceptuallydescribeshownextgenerationERPcaneffectivelydelivernew,targetedinnovationwithoutforcingalldepartmentsservedbyERPtomarchforwardtogether.

Whilecomponentsandservicesarebecomingmoreprevalent,solutionprovidershavetakenawidevarietyofdifferentapproachestodeliveringinnovationtoday.Manyarestillpackagingupreleasesthatrequireanall-inclusiveupgrade.Butthatdoesn’tmeanyouhavetotakethisapproachinaddingonnewfunctionalitythatyoueitherdevelopyourself,commissiontohavebuilt,orbuyfromathirdparty(typicallyapartnerofyourERPsolutionprovider).Anythingyoucandotomoveawayfrommanagingasingle,massivemonolithicstructureisastepintherightdirection.

CLOUDANDSAASOPTIONS

Nodiscussionofinnovationandcustomizationwouldbecompletetodaywithoutaddressingtheshiftinmovementtocloudcomputingingeneralandsoftwareasaservice(SaaS)inparticular.WhileMintJutrasbelievesthetransitiontotheSaaSERPwilltakeyears,thisislargelybecauseofthesheerdominanceofon-premisesolutionsand(historically)thereluctancetoripandreplacesystems.

Wehavebeenaskingthefollowinghypotheticalquestionforyearsnow:Ifyouweretoselectasolutiontoday,whichdeploymentoptionswouldyouconsider?WehavewatchedthepercentagethatwouldevenconsideraSaaSsolutiongrowfromsingledigits(10yearsago)to59%in2016.Figure4alsoshowsSaaSasthedeploymentoptionmostlikelytobeconsideredforthepasttwoyears.

Figure4:Whichdeploymentoptionswouldyouconsider?

Source: Mint Jutras 2016 Enterprise Solution Study

* Option was added in 2015

Therearetwopointstoconsiderhere.Firstofall,youcan’tbeagileifyouarestuckonoutdatedreleasesandnotabletoinnovatetomeetthenew

Sample Notethatover90%ofrespondentswerefromtheUnitedStates,whichhasledthewayinsentimentfavoringSaaS.

Cloud versus SaaS

Cloudreferstoaccesstocomputing,software,storageofdataoveranetwork(generallytheInternet.)Youmaypurchasealicenseforthesoftwareandinstallitonyourowncomputersorthoseownedandmanagedbyanothercompany,butyouraccessisthroughtheInternetandthereforethroughthe“cloud,”whetherprivateorpublic.

SaaSisexactlywhatisimpliedbywhattheacronymstandsfor:SoftwareasaService.Softwareisdeliveredonlyasaservice.ItisnotdeliveredonaCDorothermediatobeloadedonyourown(oranother’s)computer.ItisaccessedovertheInternetandisgenerallypaidforonasubscriptionbasis.

Usingthesedefinitions,wecanconfidentlysayallSaaSiscloudcomputing,butnotallcloudcomputingisSaaS.

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demandsplacedonyourbusinesseitherbecauseofdigitaltransformationormoretraditionalbusinesschange.InaSaaSenvironmentyouarenotallowedtostagnate,butyouwillalsoberelievedofmuchoftheburdenoftheupgradeprocess.Ofcourseyouneedtoreviewnewfeaturesandfunctionsand“optin”tousingthem,buttheSaaSsolutionproviderdoesalltheheavylifting.Youcanspendyourtimeandenergymakingthosedecisions,respondingtochangeandrunningyourbusiness.

But(secondly)whataboutthepossibilitythatyouwillneedtofillsomegapsinthesoftwareordifferentiateyourself?Inotherwords,whataboutarealneedforcustomization,ratherthanconfigurability?Ifyouarerunninginaprivatecloudorjustahostedenvironment,thesituationisnotverydifferentfromanon-premiseenvironment,exceptperhapsthatyoupayathirdpartyforthecareandfeedingofyoursolution.Butthenyoudon’tgetallthebenefitsofaSaaSsolutioneither,includingthepotentialformoreandmorefrequentupdates.

WhiledifferentSaaSsolutionprovidershandlecustomizationsindifferentways,invasivecustomizationofcodeisdiscouraged,ifallowedatall.Hereiswheretheabilitytoexternalizethecustomizationandplugitinasaserviceissoimportant.YoucanleaveyourSaaSsolutionessentiallyuntouchedandsimplyplugyourcustomizationin.Again,weareoversimplifying,butyougetthepicture.

KEYTAKEAWAYSANDRECOMMENDATIONS

WhilemostconsumersofERPwillinitiallyselectasolutionthatisthe“bestfit,”alltoooftentheylosesightofthatastheirrequirementschangeovertime.ManyoftheERPsolutionsinstalledtodayremainrigidandrequireextensivemodificationstomeetthechangingneedsofenterprisestoday.Andthepaceofchangedoesnotappeartoslowingdown.Eventraditionaltypesofbusinesschangeresultingfromgrowth,expansion,organizationalrestructuring,and/orregulatorychangesareacceleratingalongwiththepaceofbusinessitself.Addtothatthethreatofdisruptionmadepossiblebythedigitaleconomyandastagnantsolutionmayjustputyouaheadintheracetothebottom.

RECOMMENDATION:Don’tletchangebeyourenemy.Makeyourabilitytomanagechangeacompetitivedifferentiator.Considerthefollowing:

• Ifyourcurrentsolutionisrigidandmonolithic,movingforwardatasnail’space…youneedanewone.

• Ifyourcurrentsolutionisnotsupportedbyaplatformorarchitecturethatallowsyoutoeasilyconnectnewservicesorcomponents…youneedanewone.

InaSaaSenvironmentyouarenotallowedtostagnate,butyouwillalsoberelievedofmuchoftheburdenoftheupgradeprocess.

ManyoftheERPsolutionsinstalledtodayremainrigidandrequireextensivemodificationstomeetthechangingneedsofenterprisestoday.Isyoursoneofthem?

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• Ifyourcurrentsolutiondoesnotallowyouto“customize”throughconfigurationandtailoring,if“customizing”preventsyoufromconsuminginnovation,adaptingtobusinesschangeorrespondingtonewbusinessornewbusinessmodels…youneedanewone.

Ifyoudoindeedfindyourselfinneedofanewsolution,youstillneedtoconsiderfeaturesandfunctionsthatgiveyouthebestfittoday.Butdon’tstopthereinyourevaluation.Acknowledgethefactthatweliveindisruptivetimesandseriouslytakeintoconsiderationtheagilityofanynewsolution.Agilityprovidesyouwiththeabilitytoinnovate,evolveandchangeinordertotakefulladvantageofnewbusinessopportunities.Youmaynotbeabletoaccuratelypredictwhatthefutureholds,butwithanagilesolution,youcanbereadyforanything.

Abouttheauthor:CindyJutrasisawidelyrecognizedexpertinanalyzingtheimpactofenterpriseapplicationsonbusinessperformance.Utilizingover40yearsofcorporateexperienceandspecificexpertiseinmanufacturing,supplychain,customerserviceandbusinessperformancemanagement,Cindyhasspentthepast10+yearsbenchmarkingtheperformanceofsoftwaresolutionsinthecontextofthebusinessbenefitsoftechnology.In2011CindyfoundedMintJutrasLLC(www.mintjutras.com),specializinginanalyzingandcommunicatingthebusinessvalueenterpriseapplicationsbringtotheenterprise.

Agilityprovidesyouwiththeabilitytoinnovate,evolveandchangeinordertotakefulladvantageofnewbusinessopportunities.