4m read time
This is the second in a series of three articles exploring the topic of ERP modernization.
Cost concerns are a major reason that organizations hold off on ERP upgrades. And while the costs of migration to a new environment can be substantial, delaying what many see as an inevitable shift to a cloud-native platform could have an even more detrimental impact on the business. Kicking the ERP can down the road makes it difficult for the business to respond quickly to new opportunities or changes in the competitive landscape.
“Most organizations are undergoing fundamental business changes; changes that their current ERP system might not be able to support,” says Bo Lykkegaard, Associate VP, European Software Research with IDC. “They are accelerating innovation, selling through new digital channels, creating new digital products, entering new markets, and even new business models. These changes severely challenge current ERP configurations and highlight the fact that traditional, on-premise ERP is often very complex and time-consuming to change.”
Big bang vs. slow burn
So what does the path forward look like? How can CIOs map out an ERP modernization plan that delivers a rapid return on investment and doesn’t disrupt the business?
Questions of speed and timing loom large in any ERP migration. A “big bang” approach to modernization concentrates all the pain in the shortest possible time, while an incremental migration stretches the process out over months or even years. Both have pros and cons to consider.
“If there is a massive, highly customized, old platform in place, a certain level of big bang needs to happen,” says Ernesto Boada, Interim CIO at Workday. “But in some cases it may also make sense to pick and choose specific lines of business and start modernizing those incrementally.”
One challenge with all-in projects is that organizations may not be able to show enough immediate value to justify the large investment to critical constituents like the CFO. Instead, they might choose to upgrade functional modules like finance and human resources one by one and take smaller steps toward overall transformation.
“Many organizations take a simplified route to ERP modernization, where the journey is broken into multiple steps, each of which is simpler to justify financially,” says Lykkegaard.
Regardless of the approach, it’s important to remain focused on where modernization will have the greatest impact, beginning with an end goal in mind.
“IT and business leaders need to define and agree on the future they want to see in terms of transforming their ERP, the expected business outcomes, and the key capabilities they need to achieve those outcomes, such as more automation, more decision-ready insights, configurable frameworks and business processes, and continuous recalibration,” Boada says.
Regardless of how ERP is modernized, CIOs should take a hard look at the benefits of a cloud architecture that can deliver agility right away and protection against future obsolescence and market disruptions. Cloud-native solutions also provide other significant advantages like scalability, having all users on a single version, and up-to-date security.
“Look for a cloud-based platform that can truly use the power of the cloud to manage large volumes and a high velocity of data,” says Boada. Having a common data core helps drive continuous planning, execution, and analysis. And, the use of common and completely configurable frameworks enables the business to adapt to continuous business and compliance changes.
With a modern cloud platform, leadership teams will find they can innovate in new ways, such as extending core applications to develop specialized functionalities for things like vaccine management and re-entry applications, guided project close automation, supplier sustainability, quoting prices, streamlining payables/receivables, improving collections, automating tax compliance, and improving workflows.
A modern solution built on a true cloud platform helps organizations to easily integrate, extend, and leverage APIs and other capabilities to add value without customizing the core applications. Furthermore, all of these changes are durable and upgradable and don’t lead to calcified dead ends that keep an organization locked into a particular version of technology.
While staying with a current solution and vendor may seem like the easiest approach, such a strategy limits the scope of what’s possible and the value that a modern ERP platform can deliver.
“As the market and technology are always evolving, the leadership team should look at options with fresh eyes,” Boada says. The ability for a solution to interoperate with several best-in-class clouds, as well as to integrate, extend, and connect with an industry ecosystem, are critical considerations.
Overcoming risk reservations
The ongoing shift of enterprise infrastructure to the cloud is undeniable. Foundry’s 2022 Cloud Computing study found that the percentage of companies with most or all IT infrastructure in the cloud will grow by more than half—from 41% today to 63% at the end of 2023. Most companies are at least partially in the cloud, having been led by sales and marketing organizations that have already adopted software-as-a-service solutions.
CIOs may worry that because they have a proven ERP platform that works, the cost of change won’t be justified by the returns. However, that mindset ignores the cost to the business of not moving to a solution that is more adaptable for the long term.
Progressive CIOs are taking advantage of the catalyst effect that cloud platforms provide. A shift to a modern ERP is just one aspect of the transformation that the cloud enables, Boada says. “There are also opportunities to transform processes, the way you use data for decision-making, using innovations such as machine learning, and the fundamental architecture of a cloud solution to deliver adaptability and insight,” he explains.
For business users, a modern ERP system modern ERP system can provide better access to data visualization, reporting, and analytics dashboards that help them make more informed decisions. A unified data model enables organizations to enrich data and make projections based on business conditions. A modern cloud ERP can automate much of the drudge work of administering computers and networks. There’s also the opportunity to apply machine learning and other artificial intelligence capabilities to improve forecasting.
The prospect of transforming a complex business-critical system such as ERP is enough to scare off some CIOs from tackling core modernization efforts. But maintaining the status quo presents an even greater risk to the business. By beginning with the end in mind, IT and business leaders can work together to understand the future they want to see—and the best path forward to get there.
In the next article in this series, we’ll examine the importance of relationships for a successful ERP modernization.