“Composable ERP” or “modular ERP” is an approach that allows businesses to assemble the best modules and systems to meet their specific needs. This gives businesses more flexibility and agility than traditional ERP systems, which are typically monolithic and inflexible.
This article is about why and when it is beneficial to challenge the traditional way of thinking around ERP systems, and instead use a Composable ERP approach.
The aim of the article is to give you some perspectives that you can take into account when you are in a situation where you need to choose and implement a new ERP system.
Traditionally, in its broadest sense, Enterprise Resource Planning (ERP) is a system that helps you run your entire business. It supports processes and automation in finance, accounting, personnel, production, warehouse, product, procurement and more, among others.
Historically, it is common to purchase and implement “ERP suites” or “ERP packages”. Solutions that basically have one suite of modules and functionality to support the entire business value chain and associated support functions. Adapting these solutions to the business often requires a lot of changes, configuration and possibly also development. When one package covers most needs, it tends to be very complex, and with complexity comes disadvantages such as reduced usability. In addition, changes are often complex, time-consuming and expensive.
The reason why it is possible to challenge the traditional way of thinking about ERP is the emergence and maturation of cloud-based solutions and platforms. These are options that could potentially address traditional ERP modules and functionality in a simpler and more valuable way.
Solutions and platforms born in the cloud have characteristics such as that they are often designed to address specific needs in the best possible way, represent “best practices”, are easy to implement, have fast and efficient interfaces for integration, scale as needed, less reliance on vendors, have no need for infrastructure management and operation of underlying technology.
Solutions in this category, often called “Best-of-breed”, refer to choosing the best solutions for each specific feature or each need, rather than using one package that tries to do it all. Think of it like putting together a dream team of resources and tools, instead of relying on one handyman.
When there are no “Best-of-Breed” solutions available on the market, or that the “Best-of-Breed” solutions are technologically outdated, the best option may be the development of your own solutions. In these situations, it may be a good idea to consider using modern and cloud-based no/low-code platforms. They enable faster, easier and more cost-effective development than traditional software development.
To summarize, today there are many opportunities to address the needs that have traditionally been solved with ERP packages with modern, more flexible and cost-effective cloud-based solutions and platforms. What is the best approach for your company depends on the market in which you operate, business model, strategy and ambitions.
Different companies have different strategies and business models, are in different industries and operate in different markets. That means they should have different requirements and needs related to ERP systems, and therefore a different approach to realize maximum value out of ERP systems.
For example, a company engaged in the production of steel may have a stable value chain and business model. Price is often an important competitive factor, which means operational efficiency is important. For such companies, it may be appropriate to have an ERP system that covers the entire value chain, and it may be a good business case to invest in customizations and configuration of one ERP package.
On the other hand, if you are a company that supports several different delivery models, is in different markets with different requirements, and there are often changes and customizations necessary to be competitive, it will be very expensive and costly if the whole business depends on one ERP package. It is in such situations that it is important to find the right approach to how ERP should be solved, in order to ensure the effective realization of strategy and ambitions.
The third example is companies that operate in niches and are highly specialized in how products and services fit into a larger value chain. This is a situation where the operations and underlying processes must be supported by niche systems and applications. Here it will be demanding to get a standard ERP system to support the various processes, and it will take both time and money to make it happen. In addition, it will be challenging to make changes along the way when customers or the market have new needs or requirements for the products or services.
Instead of adapting ERP systems to all the different processes, the solution in such situations is often to find good niche systems or develop your own systems. If developing their own systems can provide a unique competitive advantage, that would be preferable. One of the challenges and something to be aware of is that many niche and sector specific systems were often developed many years ago and have an outdated technical architecture. An important implication with systems that have outdated technical architecture is their ability to integrate with other systems and solutions, which, among other things, can lead to data silos and the cost of ensuring data flow between processes and systems.
The following table provides some simplified examples of business characteristics that influence the choice of ERP approach based on some business factors.
The choice of ERP approach and system must be consistent with the company's strategy, ambitions, business model and value chain.
Our experience shows that the preliminary work when acquiring and implementing ERP systems is often too narrow, and many times skips the critical step of aligning the objectives of the system with the company's strategy and ambitions.
Without the initial adaptation as a guiding star, the process of collecting claims can become a long-winded affair. It can end up mixing up current business needs and detailed requirements that are of little importance in this phase, and wish lists that are poorly analyzed and too ambitious. The result of such a fragile basis for claims, is that it becomes difficult to evaluate and ensure that the solution is consistent with the strategy and helps to meet the company's ambitions.
To avoid such situations, we recommend an initial mapping of business capabilities and a categorization of these in relation to whether they realize strategy, core business or support functions. Depending on the company's strategy and ambitions, each category will have a set of unique characteristics and requirements. These will help set principles and guidelines to make the right decisions and priorities. Referring to “different businesses, different ERP approaches,” this exercise will identify how your company should approach ERP in accordance with strategy and ambitions.
This is not a big job, but it often offers great value in relation to making good choices and ensuring that the choices made are well anchored.
If Composable ERP is the right choice for your business, the recommendation is to define the ERP strategy based on the results of the exercise with business capabilities. It sets the guidelines for which business functions and processes should be supported by the ERP system, and which should be covered with “best of breed” or system development.
The illustration below shows the use of “best of breed” systems where everything is connected by integration, master data management and the use of data warehouse.
When it comes to implementing the strategy, it is important to understand the architectural implications of choosing a Composable ERP approach. Such an approach should strengthen the ability to drive change faster and at less cost, therefore it is essential that the implementation of integrative- and the information architecture enables flexibility, is sustainable and agile to maximize the value of Composable ERP.
Integration and information architecture in a Composable ERP setting should support the following principles:
The illustration below shows what an integration and information architecture that follows these principles might look like at an overall level.
This integration and information architecture can be realized in many different ways and with different technologies and solutions.
Our view is that it is important to choose technologies and solutions that support the needs and what is desired to be achieved. Assuming that the architecture should support Composable ERP, the recommendation would be to choose “best of breed”, that is, to choose solutions that have the characteristics and functionality required to follow the architecture principles “right out of the box”.
In short, the realization of Composable ERP is about designing and establishing rules for data flow between systems, how data should be processed, which sources define master data and which systems will use the master data. This is the essence of what this architecture enables.
Important to know that too complex integration and information architecture can take away the value made possible by Composable ERP. Common reasons for this happening are that technology focus takes over business focus, and complexity thus contributes to increasing development time and costs.
Unless integration and information architecture is at the core of your strategy, or drives differentiation and competitive advantage, we recommend sticking to “best-of-breed” solutions for optimal value creation.
To maximize value realization from a Composable ERP approach and recommended information and integration architecture, it is also necessary to look at how the capabilities for continuous data and integration development and implementation are set up and delivered.
As flexibility, agility, and cost-effectiveness are key benefits of Composable ERP, it is essential that the underlying capabilities also promote these capabilities.
The focus is therefore on continuous adaptation, where capacity must be able to be adjusted up or down in line with the changing needs of the business. This means that sometimes one needs to significantly increase resources, while in other periods one has no need for them at all. To achieve this flexibility, the ability to dynamically align both expertise and capacity is needed, avoiding bearing the cost of unused resources. This approach ensures cost-effectiveness by matching resource usage with actual needs.
The figure below shows what a continuous data and integration development and implementation setup might look like.
A majority of Axaz's customers who make use of our Integration as a Service have preferred us to realize Composable ERP in different ways. This has given us extensive experience in implementing and creating value through Composable ERP, which means being a partner that can effectively lead customers from their current situation to their desired goals, where Composable ERP can play an integral role.