Trends in ERP: Software on the Rise, Services on the Wane

Someone on my team shared a Forbes article with me recently about industry trends in ERP software, and one piece of it caught my attention. It was related to how ERP vendors are diverting more resources into software development, and away from the professional services teams needed to deliver that software.

Let me tell you, it hit home. At Syte, we work with a number of ERP vendors and their channels to help family-owned manufacturing companies implement ERP solutions. We know ERP, and we know what it takes to implement an ERP solution successfully. And it takes a lot more than just good software.

I’ve been noticing this trend for a while now, and I have some thoughts on what it means for vendors, and for their customers. In today’s article, I’d like to explore some of those implications and what they mean for manufacturing businesses and their ERP strategy.

SOFTWARE UP, SERVICES DOWN — WHAT’S HAPPENING ON THE GROUND

Native cloud solutions like NetSuite and Acumatica went straight for the subscription model. The problem with these newer technologies is that they don’t have the features a mid-sized manufacturing company needs. The number and complexity of the extensions required to make one of these solutions work for a manufacturing business is a non-starter.

Traditional client server solutions like Microsoft NAV, Microsoft Dynamics AX, Epicor, IFS and Infor have the features a growing manufacturing company needs — but they’ve been spending their resources for the last 3-5 years moving into the cloud. On the vendor side, this hyperfocus on cloud is a smart move. It’s going to enable them to compete more effectively in the current marketplace, it makes upgrading easier, and — most importantly — they can nab the all-important recurring revenue model.

There are big downsides to this, however. As traditional ERP vendors have focused on selling their cloud solutions, they’ve way overshot what their implementation teams and service providers can reasonably handle. Eventually the solution providers will catch up with the implementation demand, but it’s going to take years — and in the meantime, ERP customers are the ones suffering.

Lately we’ve seen some really hard cases from Aptean’s Food and Beverage ERP as they moved to join Microsoft Business Central (formerly NAV) in the cloud. And to a lesser degree, Epicor as they worked to launch the latest version of their flagship solution; Epicor Kinetic (V11).

We’ve recently been called in to help right the ship for a food and beverage manufacturer that was an early adopter of one of these solutions. They went live with their new ERP solution in September 2021, and it’s still not functioning. The product wasn’t stable going in, there was massive implementation staff turnover, and the manufacturing company simply didn’t have the internal capabilities to manage a project of this size. Now they’re $200k over budget and looking at a total reimplementation. This should have been done right the first time — but the ERP solution provider prioritized revenue over service.

This solution provider and their implementation partner are trying to make things right, but the simple fact is they promised the customer staff resources they couldn’t deliver. Now it’s costing the customer WAY more than it should to implement a solution they were told would work for them out of the box.

A REVENUE-FIRST APPROACH — WHAT’S HAPPENING BEHIND THE SCENES

ERP software doesn’t sell itself — and subscriptions mean top-line revenue growth. ERP solution providers have been doubling down on selling more products, which requires a heavier investment in sales and marketing teams.

Investment and industry consolidation is another piece of the puzzle. Landing new investors or going the acquisition route is another way to break into new markets and kick the revenue engine into high gear (I wrote about Aptean’s acquisition of Industry Built back in 2018). So placing a premium on selling software subscriptions — particularly for vertical-specific solutions — can also make an ERP provider an attractive investment or acquisition target for some of the bigger players.

From their perspective, it makes sense: The profit margins on cloud-based, subscription software are always much higher than they are on services, which tend to be very resource intensive. HR is expensive. Recruiting, developing and retaining good people is hard. And competition for top talent is fierce. Given that it takes a good 18 months for a new analyst to acquire a baseline of product implementation capabilities, it makes more sense to source 3-5+ year veterans to execute complex projects, and the ERP implementation talent pool becomes that much smaller.

It’s a big pain point for ERP vendors with a big downside for customers. While there’s nothing wrong with wanting to sell more software, it does mean that ERP vendors have to shift their resources — and unfortunately, that usually comes at the expense of their professional services teams.

A SALES-FIRST APPROACH CREATES A GAP IN DELIVERY

Now let me say that I don’t believe this is really a new problem. In my experience, ERP vendors have always sold more software than their services teams had the capacity to deliver. At the same time, they don’t want to give up the implementation service piece to third-party partners (though I predict this is going to change slowly but surely as more stories like the one above hit the media). I think that the asymmetry between the “promise” and the “delivery” will only get wider in the next few years as ERP vendors prioritize the front-end selling piece over the back-end implementation function.

For one thing, the sheer capacity required to service all those new customers is going to continue to pose a real challenge for these ERP vendors. Even if their professional services teams remain right where they are, they’re going to struggle to meet the new demand that their sales teams are generating.

But there’s also a more subtle aspect at play here, and it carries a huge amount of risk: the downstream impact on employee morale.

When a company decides to favor one of its business functions over all others, people notice. Job satisfaction plummets, and career growth stalls. At Syte, we’re usually “in the trenches” on big ERP projects, and we’ve seen the attrition and employee turnover with ERP vendors firsthand. Personally, I believe it has a lot to do with which parts of the business are getting the most love and investment, and which are being starved of resources and attention.

The bottom line is that this sales-first philosophy may be driving top-line revenue numbers, but it’s having the unintended consequence of hollowing out the in-house implementation expertise needed to deliver the ERP solutions successfully.

And ultimately, it’s the customers who bear the brunt of this shift. Whether they’re buying a brand-new ERP solution or are looking to upgrade the ERP software that they already have, the lack of professional services support really puts them at a disadvantage — and at worst, leaves them in the lurch.

NETWORKS AND PARTNERSHIPS CAN FILL THE VOID

Fortunately, the news isn’t all bad. ERP vendors have rarely delivered ERP solutions solely on their own. They’ve relied on channels (who resell and service the software) and external collaborators (like Syte) to provide additional support and expertise to make their customers’ ERP implementations a success.

And that model of channels and partners isn’t going away. If anything, it’s only going to ramp up. 

ERP implementations have always been about more than just software. If you’ve been reading this blog for a while, you’ll know that our own approach never starts with the software. In fact, the Business Transformation Frameworkthat we use with all of our client engagement focuses on people and business processes first. Only after we understand those pieces do we start looking for the right technology to fit their requirements. By the time we’re working with the ERP vendor, we already know what our client needs and how best to help them get there.

The fact is, ERP implementations are labor-intensive, and they involve so much more than just software. They require strong project management and planning. They need thorough business process assessments and analysis, data hygiene and migration expertise, change management plans, communication strategies … the list goes on.

At Syte, we know that a successful ERP implementation is a combination of people and technology. The ERP software industry may be headed in a sales-driven direction, but there will always be a need for services and implementation teams to get these big ERP projects over the finish line.

My advice to any manufacturing business that’s looking to upgrade or put in a new ERP solution would be to make sure you know what kinds of implementation and support services are available through your ERP provider beforeyou make any purchasing decisions. Better yet, work with an external partner who can help you plan, navigate and execute your ERP project, from start to finish.

ERP IMPLEMENTATION IS A TEAM SPORT

A successful ERP solution is about more than just software, and no ERP software is just “plug-and-play.” A successful implementation requires planning, analysis and expertise — and ERP customers deserve the highest caliber of support at every step of the journey.

We frequently get called in to rescue ERP implementations gone wrong, so we’re seeing the negative side of this shift away from vendor-side services. We’d love to know where you’ve seen an ERP solution provider doing implementations right! Connect with me (Erin Koss) on LinkedIn and share your story.