Many businesses today are using ERP platforms that were created over 20 years ago.¹ Although these platforms have received regular updates over the years, their core structure, code, and functionalities have largely stayed the same. Some have even made cosmetic changes to allow them to remain modern looking.

As new cloud ERP platforms are coming into their own and proving ready to a certain level, an industry-wide transition is beginning. The integration of third-party project management technologies with ERP integration is changing the traditional ERP landscape.

Instead of relying on an all-in-one software that may limit project management capabilities, contractors can now choose the best ERP for their business while also utilizing the best technologies for their operational needs.

This article examines the trends affecting ERP, how you can prepare for the change, and what a new ERP could mean for your business.

The Evolution of ERP Software

Many software functions that are taken for granted today weren’t considered or available back when many ERP programs were originally developed in the 1990s and 2000s.²

Looking back to 2000, mobile phones and the internet were not nearly as widespread, and cloud computing and artificial intelligence (AI) weren’t even on construction’s radar. In addition, integrations were hard and conducted on a point-to-point basis, and reporting was one-dimensional and rather static.

Technological Advancements

In the decades since the first ERPs were deployed, the software sector has witnessed so many advancements in technology that it’s hard to keep pace — even for modern architecture and proficient development teams.

Ownership

Back in the day, most ERP platforms were privately held, owner-operated businesses, and investments in the ERP were limited to a percent of earnings.

Today, many ERP platforms have been acquired by publicly traded or investment companies. They are investing in the products and bringing new ideas and experiences into the companies they acquire, but frequently have shorter-term profit motives, which brings pressure on pricing.

Licensing Model

The licensing model has also changed in favor of software developers. With SaaS agreements rather than perpetual licenses, ERP platform costs have increased.

Integration

When ERP products were first developed, the idea of having a dozen or more third-party technologies integrated into the platform simply wasn’t practical; but today, it’s a given.

Human resources (HR), project management, payment portals, procurement, equipment management, timecards, and many other products can contribute data to ERPs or draw from them, and the technology to enable this integration is available. To facilitate these integrations, construction companies are increasingly adopting middleware — platforms that connect to multiple programs and exchange data.

However, proceed with caution, as new and shiny does not always mean flawless. Older software has had time to mature, with help from customer feedback and development hours. An array of rich, deep, and nuanced functionalities are already built-in and, for the most part, they work.

While new ERP software offers some important technical advantages, developers will be busy catching up on the functional gaps for several years — think about certified payroll, American Institute of Architects (AIA) billing, subcontract management, complex union payroll, forecasting cost-to-complete, use-tax accrual, and any of the other sophisticated functions that the industry takes for granted.

The previous mentality was “we build it ourselves, so the contractor doesn’t have to deal with multiple non-integrated platforms.” However, new ERP developers are taking a different view of their position in the marketplace.

Some of the newer cloud platforms have integration technology front and center, anticipating integrations from the beginning and making it easier with help from an integration-friendly architecture (e.g., publicly available application programming interfaces (APIs)). This suggests that a contractor’s ERP investment is no longer limited to the platform itself, but rather it will be the sum total of the ERP software plus all integrated products that are required to support the necessary functions.

Some ERP providers are even abandoning specific applications after years of development, simply due to the challenges of trying to keep pace with the market. This trend could continue, and it could translate into a diminished ERP software footprint — which are the collective applications that a software solution provides — for most organizations.

The Value of ERPs

Another consideration factoring into a contractors’ calculation on ERP is value.

Construction contractors use ERP differently than other industries like manufacturing and retail. These other industries have invested heavily in their ERP platforms, as it is the system of choice for getting work done rather than just keeping the books.

Construction has mostly viewed ERP as an extended cost and financial 
management solution — the end of the road perhaps rather than the road itself. Construction companies would key data into their ERP after the fact and use the software to provide a look back at performance for a job, vendor, or the company rather than to facilitate day-to-day operations. It could be argued that billing, payroll, and purchasing are all operational functions, and while they are necessary, how much value do those functions really produce as performed today?

Prefabrication & Modular Construction

Prefabrication and modular construction are also impacting the ERP footprint, as these functions are turning a contractor partially into a manufacturing company. Traditional ERP programs used in construction don’t facilitate shop floor management, work orders, nested material bills, or robust inventory management.

Today, those adopting construction ERP solutions often rely on a third-party non-integrated solution for these functions or an ERP platform that handles both.

Human Resource Functions

Similarly, the movement to Best in Class HR software is changing ERP. Previously, HR was an application within the ERP suite and tightly integrated to payroll. As the demands for HR automation increased and the size of the departments running it grew, HR applications were removed from ERP suites and moved to Best in Class applications.

Now, some of those applications have an expectation that payroll will also move to remain integrated. Other contractors are considering remote payroll applications to get this complex and time-consuming function out of their organization. But unfortunately, not all third-party payroll applications are construction-ready. With complex union requirements, multi-state payrolls, and Davis-Bacon prevailing wage jobs, standard payroll applications might not meet construction-specific demands.

The integration of payroll back into ERP is certainly a consideration, as job-costing and job rules are most important.