Five questions with Nucleus analyst and Matrix author Seth Lippincott
With your permission, we’d like to take a moment to brag on our team here at Rootstock.
When the Nucleus Research ERP Technology Value Matrix was published in August, we were proud and excited to be placed in the Leader quadrant for the first time.
We know this was made possible by the incredible talent and dedication of our entire team, and the outstanding effort they make every day to build and deliver solutions that provide remarkable value to our manufacturing customers.
But we weren’t just proud and excited. We were also intrigued by some of the report’s findings. We wanted to know more about the trends that Nucleus analyst Seth Lippincott sees emerging in the ERP market. And we wanted to share that deeper knowledge with you.
We approached Seth with a few questions. Read on to see what we asked him, and what he told us. Also, our thanks to Seth for taking the time to respond!
Aside from verticalization, what other emerging trends are you seeing in the ERP market?
Cloud adoption is still at the heart of the ERP market. Some vendors see accelerating adoption, others are lagging a bit, often due to difficulty demonstrating the value to their customers. As a result, many vendors are focused on giving customers a choice in how they deploy. For vendors with a large contingent of customers on legacy systems, jumping wholesale into the cloud is unrealistic, either due to too much FUD or simply no business imperative. Hybrid deployment and stepwise movement to the cloud options are on offer from many vendors and should continue to be standard for those making the transition to cloud.
A primary plus of hybrid deployments (and let’s keep in mind that that phrase carries a range of definitions) is the flexibility they give customers to determine which workloads they want in the cloud and which they want to keep on premises. For instance, a customer might be concerned with uptime and lost production if connectivity with the cloud were to fail and take the manufacturing execution system along with it. Hybrid gives the customer the choice to run the MES on premises while shifting systems like HR and CRM to the cloud, where connectivity issues don’t result in lost revenue. For vendors that offer end-to-end functionality across ERP, HCM, CRM, and supply chain management, both in the cloud and on-premises, tailoring workloads to run where the customer wants adds a layer of complexity but is doable. Pure-cloud vendors are working to ensure that customers can continue to operate when connectivity is lost (even for just a short time), then can re-synch once connectivity is restored.
You discuss “verticalization” and, based on your vendor descriptions in the report, that’s a clear trend. Over time, do you expect more or fewer vendors focused on the manufacturing vertical?
The manufacturing vertical is difficult for some vendors because there are so many microverticals to it. While it is relatively feasible for a vendor to deliver satisfactory value in a vertical catering to generic professional services, for example, each manufacturing vertical can require specialized capabilities and workflows. For example, the dairy industry benefits from vastly different capabilities compared to plastics or cardboard manufacturers.
Some vendors have left the task of servicing microverticals to ISVs instead of providing the capabilities themselves. I expect that to continue as more vendors are creating marketplaces for partner-built add-ons. With many customers looking to make technology investments that have a 10-year+ lifespan, the ability to deliver capabilities via a broad partner ecosystem, now and in the future, is a differentiator. Customers want a platform that they know will grow and evolve as technologies like AI, machine learning, IoT, and Big Data become better productized and able to deliver better value to users. I expect vendors that are able to demonstrate how customers can extend their solutions with partners while sitting atop a platform with technologic extensibility of its own will be in an increasingly advantageous position moving forward.
In delivering cloud-based ERP, do you see any inherent advantage for cloud-native vendors, or does the situation favor traditional ERP vendors who are acclimating to demands of cloud delivery?
Vendors with predominately legacy ERP deployments often have large customer bases to which they can market their cloud products. However, for many of those customers there’s no clear business case to adopt the cloud and so a significant percentage of cloud deployments traditional vendors claim to have are net new. In that respect cloud-native have an advantage of not needing to demonstrate sufficient value to overcome doing nothing when trying to upgrade legacy customers.
However, customer loyalty, regardless of the value the vendor is delivering, can be strong in the ERP space. This puts cloud-native providers at a disadvantage when looking to unseat the incumbent vendor. On the other hand, if the customer does not have an incumbent ERP vendor, cloud-native vendors should be able to better demonstrate the value they deliver in the cloud since they aren’t playing catch-up like many of the traditional vendors.
You mention the increasingly clear value proposition for cloud-based ERP. Among those who remain unconvinced, do you see any consistent objections? If so, how would address them?
For some, the stumbling block has become availability and uptime, replacing security as the primary objection. When the customer controls the hardware, they believe they can better ensure 100% uptime and more quickly address any issues than those deployed in the cloud reliant on the vendor. Vendors are looking to combat this conception by demonstrating consistent service and improving their cloud operations response teams.
At the same time, customers sometimes view their ability to maintain uptime through rose-colored lenses. Vendors reporting 99% uptime throughout a calendar year are making a compelling case that a customer’s system is in good hands when system management is outsourced. The cost savings and additional value-add they can reap by moving to the cloud and then reallocating IT personnel away from day-to-day system management may also sway customers.
Several of the vendors in your Leader quadrant – Microsoft, SAP, Oracle – are extremely large organizations. Others are comparatively small. What is it that allows vendors of such widely varying sizes to be Leaders?
In the ERP Value Matrix, we position vendors based on the value their end customers realize, specifically return on investment, so the size of the vendor is irrelevant. A smaller vendor, so long as it is delivering a quality product, is equally able to deliver value to its customers as larger vendors.
Check out the full report
Nucleus evaluated 21 vendors in their 2017 ERP Technology Value Matrix. For anyone looking into ERP solutions, reading the full report is a great place to start. You’ll find it here.