The High-Stakes Innovation Dilemma: Operating on Core Vendor Packages, but Now Struggling to Survive in a Cloud-Native World
In today’s rapidly evolving business landscape, digital transformation has become a key differentiator for organizations across industries. While innovation used to be a luxury for the few, it is now a competitive necessity. This shift has left many companies tied to core vendor packages—such as ERP, MRP, core banking, or insurance systems—at a significant disadvantage when compared with both larger competitors who build and own their own cloud-native applications and services and new challengers as born-in-cloud startups.
Though package vendors continually release new features aimed at helping their customers innovate and compete, these efforts often fall short of driving true differentiation. Why? Because all customers of these packages receive the same updates, leading to a homogenization of capabilities across the market. Meanwhile, companies with in-house, cloud-native platforms are able to push the boundaries of innovation, respond to market needs more swiftly, and deliver personalized solutions that set them apart from the competition.
The Problem with Core Vendor Packages
Core vendor packages like ERP systems (e.g., SAP, Oracle), MRP platforms, and industry-specific solutions for banking and insurance, were traditionally adopted for their comprehensive, "out-of-the-box" functionality. These packages streamline core operations, reduce implementation complexity, and ensure compliance with industry standards. But while these advantages are valuable, they also come at a cost—namely, innovation and agility.
1. Homogenization of Features and Capabilities
Vendor packages cater to a wide array of customers across different industries, focusing on delivering standardized solutions that address the most common needs. When vendors release updates or innovative features, they distribute them broadly across their customer base. For example, an ERP vendor might release a new AI-powered inventory management feature that is available to all customers. While this may seem like an innovation, the problem lies in the fact that everyone gets the same feature.
This lack of exclusivity results in a scenario where mid-market companies that rely on vendor packages can rarely differentiate themselves from their peers. The moment a feature is introduced, it becomes a baseline capability rather than a unique differentiator. As a result, companies tied to these packages find it hard to stand out in their markets, with all competitors on the same platform benefiting from the same improvements.
2. Vendor Lock-In and the Innovation Gap
Another significant challenge comes from vendor lock-in. Core systems are often deeply integrated into an organization’s operations, making it difficult, costly, and time-consuming to transition away from them. This lock-in leaves companies dependent on the vendor's innovation cycle, which is typically slower and more general-purpose compared to what an organization might achieve with its own cloud-native solutions. Companies that build their own platforms have full control over their technology roadmap and can prioritize innovations that directly address their unique business needs and strategies.
Moreover, as cloud-native technologies evolve—embracing containerization, microservices, and continuous delivery—organizations with in-house solutions can rapidly deploy changes and test new features in real-time. Meanwhile, customers of vendor packages must wait for the vendor’s next product release cycle, which could take months or even years.
3. Limited Flexibility and Customization
Vendor packages are designed to be one-size-fits-all, which inherently limits customization. Though vendors often provide APIs or customization tools, these are typically rigid, requiring significant effort to tailor the package to specific business needs. Additionally, heavily customized solutions often become difficult to upgrade, as the customizations might break or require re-engineering after each vendor update.
On the other hand, organizations that develop their own cloud-native applications are free to design systems from the ground up to meet their unique requirements. They can quickly pivot to address new opportunities or challenges and integrate the latest technologies like AI, machine learning, or IoT without waiting for vendor approval or support.
The Cloud-Native Advantage
Larger organizations or market disruptors that have adopted cloud-native architectures enjoy several strategic advantages that companies tied to core vendor packages simply cannot match:
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1. Faster Time to Market
Cloud-native companies operate with continuous delivery models, allowing them to push new features, updates, and bug fixes multiple times a day. This continuous feedback loop helps them respond to customer needs faster than their package-dependent competitors, who often must wait for vendor release cycles and lengthy testing periods.
2. Defining a Truly Unique Customer Experience
When companies build their own applications, they can focus providing a unique user experience that is specific to their business or market niche and brand, creating unique offerings that cannot be easily replicated by competitors. For instance, a cloud-native retail company might build a proprietary recommendation engine powered by advanced AI that perfectly aligns with their customer base, while package-dependent competitors are limited to whatever the vendor provides.
3. Scalability and Resilience
Cloud-native architectures, built on microservices and containers, allow organizations to scale individual components as needed, improving system performance and resilience. This is particularly valuable for companies in rapidly growing industries, where the ability to scale infrastructure seamlessly is key to success. Vendor packages, in contrast, are often monolithic and harder to scale without significant investment.
4. Innovating with Data and AI
Organizations with cloud-native solutions can leverage their data more effectively, integrating AI and machine learning models directly into their operations. They can design systems that collect, analyze, and act on data in real-time, improving decision-making and delivering more personalized customer experiences. Vendors may offer similar features, but these are generally built for broad use cases, lacking the nuance required for true competitive advantage.
Package Vendors’ Struggle to Bridge the Gap
It’s important to note that core package vendors are not blind to this innovation gap. Many are working hard to add cutting-edge features to their platforms. They invest in AI, machine learning, and cloud capabilities in an attempt to keep up with the demand for innovation. However, their inherent business model limits how much they can offer their customers.
As package vendors continue to target a broad customer base, their innovations must be designed to accommodate a wide array of industries and business models. This compromises their ability to deliver deep, targeted solutions. For companies relying on these packages, the result is that any competitive advantage from new features is fleeting, as their competitors receive the same tools at the same time.
Breaking Free: What Can Mid-Market Companies Do?
For organizations tied to core vendor packages, there are options to bridge the innovation gap and regain their competitive edge:
Conclusion
The allure of core vendor packages has always been their ability to streamline and standardize operations. However, in today’s fast-paced digital world, reliance on these systems can leave organizations stuck in the middle—able to keep up with competitors but unable to lead. To truly differentiate in their markets, organizations must find ways to balance the stability of vendor packages with the agility and innovation that cloud-native technologies enable. Those who succeed will be the ones who not only adapt but also anticipate the future needs of their customers and industries.
As a leader in cloud native platform engineering and CX/UX, nvisia offers advisory, assessment, workshops, roadmap, and platform jumpstart services to help.