Does Your ERP Provider Run Your Business?

Sounds like a simple question, but the answer may be more complex than you think.  SAP had a tagline that read, “The best-run businesses run SAP.”  But is this statement evolving to be more like, “the best-run businesses ARE run BY SAP?”  This does not apply to just SAP, but can also be applied to Oracle and Microsoft, and potentially other vendors depending on how extensively a customer is using their software solutions.

Executives are increasingly less likely to make business decisions without input from IT and an assessment of the implications of a business decision from an IT perspective.

The question turns on whether a business can operate separately from the software it uses to run its business.  As we are seeing in the evolving role of IT and the office of the CIO, business and IT are no longer being viewed separately.  The CIO now has a seat at the table and is more often someone who has been promoted to that office from the business side, with an emphasis on driving greater business value through IT innovation.

Business and IT are becoming one in the same.  IT is how business is conducted and through IT is how value is delivered to customers.  The greater role IT and IT software plays in the business, the greater the control IT software has in operating the business, and the business becomes more dependent on its IT software providers.

Your ERP as your hub

We pose the question as we do since ERP is the hub of business software, with other business software solutions being run as spokes off the main ERP hub.  Therefore, your ERP provider is the one software solution provider who could be running your business, even if you do use other software solutions for different business functions.

Another perspective is to consider how software solutions are adopted in the first place.  There is a business need and defined business goals that drive a project, which typically includes changing business processes and adopting best practices.  The ERP provider has developed its software to reflect years of research in defining business and industry specific best practices.

In most cases, the business changes its business processes to conform to the ERP software, with some flexibility to configure the software as necessary, but nonetheless with substantial modification of business practices.  As the software is updated and evolves with increased and improved functionality over time, the business slowly adopts these changes as well.

Eventually, people stop differentiating between the business processes and the software itself; they become one in the same and they’re simply viewed as how the business is run.

The challenge this creates for businesses is that now the ERP provider has a lot of leverage and more influence in how you run your business.  Think of it this way – which is easier to replace, your CIO and CFO, or your ERP provider?  Carefully consider not only the cost and time to replace them, but the overall disruption to the business.  Not such a simple answer now, is it?

What does this mean for leaders?

In professional sports, this is why managers and head coaches get fired all the time and then inexplicably re-hired by other teams.  The reason for the firing is the results did not meet expectations, and even if the coach did their job well and the blame falls more squarely on the players, the coaches are much more easily replaceable than the players.

If there is a head coach with prior championship success, they fire their assistant coaches, like pitching and hitting coaches, to send a message to the team and provide an opportunity to turn things around before eventually sacking the head coach.  The owners do this so they are able to reason away why a coach was not successful in their prior job and still feel good about hiring them for their team.

So, what does this mean for business leaders, which now includes the CIO?  It means that your ERP provider is more emboldened to negotiate firmer by offering less concessions – think what this means when your cloud agreement comes up for renewal and you do not have perpetual licenses to continue running your business nor the practical option of switching to a competitor solution.

It also means your ERP provider will be emboldened to influence your decision-making process in non-traditional ways – think audit compliance claims if you choose a competitor’s solution for a software extension or decide to postpone a purchase, similar to what we have seen with SAP Indirect Access claims in some scenarios.  The goal of your ERP provider is to obtain as much of your IT budget as possible, and they will use all the leverage they can to generate those opportunities and obtain those deals.

In a number of situations this is driven according to your ERP provider’s desired timeline, as opposed to your own.

Some view this as vendor lock-in but it really goes beyond that, as ERP vendors use this leverage, not so much as a shield to protect their current foothold, but as a sword to expand their footprint.  Rest assured that your ERP vendor is aware of the leverage they possess.  They would prefer a good relationship with your business leaders and assist in making the business case for why your company needs to purchase more of their solutions.  However, if the business leaders are viewed as roadblocks to achieving their goals, your emboldened ERP provider may resort to more aggressive tactics if necessary.

So how do you guard against your ERP provider running your business?

The answer lies in balance – consider geopolitics.  You want forces in place that balance each other out and hold each other in check.  This is the problem that occurred in Iraq after Saddam Hussein was overthrown, which eliminated the natural counter-balance to Iran and caused a domino effect that has led to the current instability in the region.

If you fail to maintain a portfolio of competing vendors that can replace each other and thereby keep each other in balance, then you run the risk of having one vendor solidify and expand its footprint to such an extent that your business cannot run without it. Hence your business is run by the vendor and they become emboldened to overrun your decision-making process.

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