Organisations and ERPs are becoming modular - why and what does it mean?

Over the last couple of years, Gartner has highlighted the topic of ”composable” models: Composable Organisation, Composable Architecture and Composable Technology. It’s about composable thinking, which is applied broadly to all layers of management. I see this as a certain counter-movement to the ”One company” and ”One ERP” way of thinking that we have been seeing for a long time now. In fact, Gartner used to talk a lot about ”Post-modern ERPs”, which was the starting point for this kind of thinking: in this model, a traditional, monolithic ERP is reduced to its core and completed with separate solutions according to a company’s specific needs.

Ilkka von Schulman

29.11.2022

In the manufacturing sector, a ”composable organisation” is understood as a modular and configurable fabrication, where specialized subcontractor networks each do what they are best at, instead of trying to do everything themselves. The key is a high level of specialisation and a focus on one’s core competencies. As a consequence, an ecosystem is built around whichever market actor can organise these various activities in a way that is beneficial to their shared customers. For this reason, the “one company” way of thinking has been becoming increasingly irrelevant for some time now. 

An important factor behind the ”Composable ERP” model is the transition to cloud ERPs. Mainstream cloud ERP functionalities are relatively plain compared to the previous generation. These basic functionalities are then complemented with capabilities from the surrounding ecosystem. Cloud ERP providers have also joined in on this model, partly to make their pricing more flexible and adaptable to the customers’ needs, but also to maximize the vendors’ profits.

Modular thinking requires new know-how

Russia’s attack on Ukraine and the West’s expanding sanctions regime signal a warning to China and other developing economies as to how their dependency on Western technology and cloud services could quickly become a problem. Therefore, I believe that in the next few years, we will see major obstacles to doing the types of global system harmonizations that have been done in the past. This can lead to a new kind of composable operating model and system thinking, according to geopolitical boundaries.

In large corporations, the one company - one ERP mode of thinking has meant pushing business units based on a very different business logic into the same system. As a result, we’ve seen lengthy development programs and systems ruined with excess customization before being left without implementing the necessary version updates. Those who have experienced this are now wondering whether business units with different business logic should be allowed to choose the solutions that best suit their needs.

At Midagon, we conduct a large number of incorporations, divestments, carve outs and post-merger integrations for our clients annually. From our point of view, composable thinking and the flexibility it enables for ICT architecture are very welcome. Separating parts of highly homogeneous and monolithic entities is an aggressive measure, not to mention the piecing together of two companies after a merger.

”If there is even a 20% possibility of a business unit or division being sold, it should not be included in the core system. It is usually not possible to know these types of changes beforehand, but the probabilities can be calculated early on. It is a sheer waste of money and resources to first integrate and then divest after only a few years.”

Personally, I like the benefits that composable thinking brings: standardized modules but highly flexible interfaces. In our current operating environment, the monolithic model of enterprise resource planning would no longer be possible. The downside is that assembling the pieces requires new know-how and leaves the responsibility of a well-functioning entity to the customer. At least for now, the system integrators’ services and expertise haven’t reached the level at which they could reliably be in charge of the interoperability of the entire ecosystem.