ERP Software Industry Outlook

Amid rapid technological evolution, the enterprise resource planning (ERP) industry is grappling with new challenges and opportunities. To better understand the current state of the ERP software industry and how AI and other trends are impacting ERP providers, GLG’s Yining Su interviewed industry expert Dr. Wolfgang Faisst, co-founder and CEO at ValueWorks.ai and Senior Advisor at Excubate Corporate Startups and Cadence Growth. Previously, he held strategic innovation roles at SAP over 14 years, including Head of Product Management for the “SAP Business Suite on HANA“ driving the start of SAP S/4 HANA and Head of S/4 NEXT shaping the evolution towards AI.

Could you give us a brief overview of the ERP industry?

The ERP industry is very consolidated in the large enterprise space with SAP, Oracle, and Workday leading. It’s very fragmented in the small/mid enterprise (SME) space where these players, but also Microsoft, Sage, and Infor, are leading but with a much lower market share. In the large enterprise space, we also see a bit of a different picture in U.S. versus the rest of the world. In the U.S., according to the latest analyst figures, Workday is leading, while in the rest of the world SAP is leading, for example, in EMEA with 24%, in the Asia Pacific with 19%, and LatAm also around 20%.

A key trend in the past few years in this industry has been the growth of cloud-based ERP systems. What is the current status of cloud versus on-premise versus hybrid ERP?

ERP has been late in the cloud adoption versus CRM or HR that were clearly leading the cloud transformation, but now the direction is very clear that cloud is the priority, and ERP in the cloud is going mainstream. There are, of course, some variations of the cloud. The public cloud on the one side is very popular with the SMEs. When you go larger in the price space, there is a lot of private cloud, which you can say is on-premises with hosted, but you can also say it leverages cloud technologies. But, clearly cloud is the direction and the clear path to cloud will not be reverted again.

Another trend in the ERP industry is AI, as it has been in many industries. What are some examples of how ERP providers are using AI, and what are the key challenges?

AI is leveraged by ERP vendors, and I would differentiate into three major use cases. One is automation, which is, for example, helping to do pattern recognition, identifying the information from paper documents that then get processed within an ERP, or matching invoices versus payment where you look in various data silos and do the matching. So that’s automation, and that is very common, very much also adopted.

Then the next element is about intelligent predictions, taking the huge set of data within an ERP system into consideration, maybe even data beyond for predictions. And on top of that, early warnings also become a very crucial AI element. The third element is, probably when you look more from a high-level perspective, the thing that comes most to mind is the copilot, the conversational interface to an ERP application that is very cumbersome to be used, for example, by an executive or by, let’s say, a business user sometimes because of the complexity of the user interfaces.

The copilot helps so that you can interact with an ERP, like with a human being, like an assistant or an admin person. And that copilot makes it easy to interact with the ERP. In general, I would say that the ERP vendors, not only their products leverage AI, but they also leverage it when it comes to product development. For example, they use gen AI to improve the coding, to even do coding in the SAP case. For example, a lot of the ABAP code can be generated with gen AI, so that you don’t need so many capable people that can program in ABAP, which is, to be honest, not the most popular coding language.

Another thing is quality assurance with the help of gen AI, or even generating user interface designs with the help of AI that you then further check with AB testing. And, of course, a very common field of gen AI is marketing, creating creative or generating text in a very easy way. I think ERP vendors take the benefit of AI in a very comprehensive way, like other software companies do for the benefit of their customers, but also of their own employees.

There’s been a lot of hype around AI in ERP, as there has been in different industries. How much does the AI talk from the ERP providers match with the actual client needs?

AI is, of course, nice to show in a customer conference, but the truth is that if you speak with a CIO, they probably have more headaches with, “Oh, I need to migrate my legacy system in the cloud. I need to define a migration path, and there is still so much homework to do.” Even if you think of connecting with machines, that is very much a trouble within the cloud. So IT departments, they’re stretched in running the show, running the ERP systems, preparing for, let’s say, for the migration and helping the lines of businesses to adopt new cloud applications, embracing AI, and so on. I think the AI, everybody understands, yes, it’ll come, it’ll be cool, but in these days, the IT departments, they are absorbed with a lot of other topics.

That means yes, they say, “Yeah, it’s the future,” but so far it’s more like baby steps in adopting it. But that is, for me, only a matter of time. Some obstacles are also if you want to apply AI that you need to get the data together, the more you bring it together in a structured form, the easier it is that you can analyze it. And there are some very nerdy, let’s say, obstacles, like that you cannot let a copilot bypass your user authentication rights because the copilot of an employee should not be able to then give you confidential information out of the ERP. So these things all need to be sorted out, and that, of course, creates headaches with the IT department.

What are some of the other key trends that you’re seeing with ERP?

At the moment, companies are faced with a lot of new regulations with the topic of ESG, and large companies that are very much exposed to the public, they define themselves an ESG agenda. Then it’s about implementing that to feed the ESG reporting, and this can be very simple when it comes to the “S” part that comes out of the HR system. But the “E” part, the environmental part, is something very tricky if you deal with logistics with resource consumption and procurement data.

You need to translate the shipments or miles that you transported your goods into a carbon footprint. And for that, initiatives are running, but they are quite complex with thousands of suppliers, thousands of goods, and thousands of people doing something in the organization. So that is a topic that is very much in the spotlight of the customers, but with that also the ERP vendors who are providing modules and software for sustainability and ESG management, besides the broad range of start-ups that are also in this space.

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About Dr. Wolfgang Faisst, PhD

Dr. Wolfgang Faisst has been chief executive officer at ValueWorks.ai, which he co-founded, and Senior Advisor at Excubate Corporate Startups and Cadence Growth since 2020. Previously, he held numerous strategic positions within SAP over nearly 20 years. Dr. Faisst was head of S/4 NEXT between 2018 and 2019 and head of product management for the SAP Business Suite powered by SAP HANA during the start of SAP S/4 HANA between 2013 and 2014.

This article is adapted from the GLG Teleconference “ERP Software Industry — 2024 Outlook” hosted on February 8, 2024. If you would like access to this event or would like to speak with Dr. Wolfgang Faisst, or any of our industry experts, please contact us below.