Existing ERP and IT Systems Constrain Collaboration and Productivitygetty
The world’s businesses are moving into a deeper level of competitiveness and productivity. In the past, when we introduced sailing into the oceans, it improved trade, which resulted in a huge explosion in wealth. When we introduced the telegraph and phones into the world, it dramatically changed communication. When we introduced common accounting practices where we could professionalize the accounting function and rely upon a consistent way of record keeping, we thereby improved productivity. The next wave is where companies will share information across countries and organizational boundaries. However, this transition necessitates moving away from current IT architecture.
In previous blogs, I discussed how existing IT systems create significant friction when trying to share information, thus constraining cross-country, cross-organization collaboration. Interfaces such as APIs connecting systems are cumbersome and require constant maintenance, and it is difficult to secure them. These workarounds do not allow systems to keep up with the pace of change in today’s businesses.
The problem is the ERP and IT systems are based on a silo mentality. Each company maintains its own records, which are secured and maintained inside the company’s firewall. Control of data and sharing pieces of data with other companies is allowed only under certain conditions. This inherently creates tremendous friction in the sharing of information when collaborating across boundaries.
Companies built their business on top of these IT platforms, which create this friction. To go to the next level of collaboration and cooperation, companies need to reduce this friction. But they cannot do so with the current architecture – relational databases.
We have extended the database technology in the ERP systems that ride on that about as far as we can. It is time to attack the fundamental constraint by using blockchain technology.
As I explained in a prior blog, Network Resource Planner (NRP) solutions are built on blockchain technology, which eliminates the constraints of current software systems such as ERP applications that rely on database technologies with walled access to data.
We live in an increasingly distributed business world in which organizations rely on components in different parts of the world. To deliver greater value to customers, organizations now must combine assets and capabilities across companies into a single collaborative platform where they can create new value. This makes organizations more dependent on networked ecosystems, but traditional ERP systems cause huge constraints in the way networks can operate.
Three required solution aspects
In transitioning to the next level of competitiveness, companies need to use different toolsets. These tools need to have three aspects. First, they must have a distributed ledger, which is distributed across the ecosystem so that everybody can use one record. This one source of truth acts as instant and transparent insight across the ecosystem regarding the product, services, or the pieces of information necessary to collaborate.
The second aspect is sovereign identity. All trading systems are based upon trust and by someone’s identity. The ecosystem participants (whether organizations or individuals inside of organizations) need an authentic identity guaranteed so that they know who they would deal with and know the reputation of that organization or individual.
The third aspect is a way to create frictionless payments across boundaries – digital payment systems can be trusted to transfer the payment of goods and services across boundaries.
Clearly, companies’ current systems as architected will not support these three aspects.
Fortunately, there is a secure technology that companies tested at scale, which provides for all three aspects: blockchain. Its distributed ledger technology removes all the friction that existing IT structures impose upon businesses.
NRP is the next generation of ERP technology, and the gains from shifting from ERP to NRP are substantial.
Consider, for instance, the benefits of an NRP solution for an agra-commodities network. Such a track-and-trace network could inform users of a product’s supply chain lineage, which also serves as a quality-control mechanism against tampering, contamination, or counterfeiting.
Another NRP solution example is a healthcare network comprised of healthcare providers, insurers, and federal agencies. The network would enable them to collaborate on patient records management, invoicing and reconciliation, and claims adjudication.
An NRP distributed software network serves as a common foundation for simultaneous, multi-party management of data and processes. It enables inter-industry collaboration, creation of shared business value, and inter-customer experiences.
As with the adoption of other new technologies, enterprises adopting NRP solutions encounter challenges in building and managing the business model for the network. A key challenge is creating cohesion among competitors in a collaborative environment to ensure consensus and fairness. Another challenge is governance, monetization, and optimization of ROI, which will be key to encourage broader adoption. A further challenge is managing discord with existing processes. Some participants also may have concerns around network lock-in risk.
We at Everest Group recommend a four-step approach in mitigating these challenges:Crystalize foundational approaches and identify key stakeholders. Build a minimum viable ecosystem to demonstrate potential. Define a governance structure and incentive model for network scaling. Grow the ecosystem across industries by activating network effect.
Bottom line: Working through the challenges is well worth it. As in all situations, the early movers stand to gain huge benefits as they build truly disruptive ecosystems that outcompete the old, constrained ecosystems that constrict businesses today.