ERP Modernizations, Migrations, And Maturations
February 13, 2017 Dan Burger
There are many reasons to re-evaluate business processes. And one of the first places to look is the current state of your ERP software. How old is it and what are its strengths and weaknesses? A character-based interface might have been appropriate when the software was purchased, but for many shops it has wounded productivity and efficiency by stalling process improvements and technology implementations that could be adding value to your organization.
The interface, however, doesn’t deserve all the attention. It’s just a visual cue like grey hair and wrinkles. A lot of value can be found behind the inescapable conclusions based on appearance. The rush to judgment is often flawed.
For the most part, legacy ERP systems have long lives because they have deep business functionality based on years of code written to meet customers’ needs. What they most often lack is modern technology that adds business value for the ERP users and could potentially put those legacy users at a disadvantage in competitive markets.
The manufacturing industry is a good example. The IBM i platform is popular among manufacturers and there are plenty of ERP systems that fit the legacy description. But that doesn’t put them on Death Row awaiting execution. Some, without question, deserve that fate, but not all of them.
Before granting any of them a pardon, ask this one question: Will your existing ERP support your new business model?
“New business and production models, industry standards, best practices, and technology have enabled top-performing manufacturers to separate themselves from the rest of the pack,” writes ERP analyst Nick Castallina in a report published earlier this month by Aberdeen Group. “To support manufacturing change and provide a platform for innovation, forward-thinking manufacturers have adopted a series of technologies, including cloud, analytics, and the Internet of Things. The result is an ability to combine analytics, enabling a more productive and efficient manufacturing environment.”
So, to get what you need, do you rehabilitate the system that you have, or pull the switch on a system and a vendor that aggravate your goals for improving business processes?
Two factors loom large: the reality of your current ERP system and the vendor that supports or controls you.
“If your ERP is out of date, the decision may come down to what options are available from your ERP vendor,” Castallina says. “If the vendor offers an easy path to modernization, that’s usually what a company will do rather than rip and replace, which is going to be more disruptive and take more time to accomplish. Having a foundation in place makes modernization easier than migration.”
On the other hand, there are vendors that have lost their enthusiasm for innovation, service and support, or that are asking a king’s ransom to upgrade customers that deserted their maintenance support years ago. It wouldn’t make sense to continue with that vendor, even when it means tossing away your substantial investment and foundational ERP.
See the IT Jungle article See Something, Say Something to read about on-going toxic vendor-customer relationships and the collateral damage they create.
In Castallina’s report, ERP’s Role in the Modern Manufacturer, he notes changes in manufacturers’ strategies for increasing profitability, which, by a wide margin, is the number one goal of manufacturers.
“Increased competition is leading to a focus on servicing customers. To succeed, manufacturers must explore new ways to deliver innovative products and services. For many, this has necessitated a change in processes, and even sometimes a change in business models. Many of these changes would be impossible in existing business systems. Therefore, manufacturers have prioritized modernizing business systems as their second goal for the near future.”
According to data collected by Aberdeen researchers, modernizing technology infrastructure and applications is a top strategy of leading manufacturers. The only strategy ranking higher is streamlining and accelerating processes to improve efficiency and productivity.
Whether modernizing or migrating, Castallina believes there’s an increased interest in cloud ERP–software as a service–because it is closely aligned with current technologies and the advantages they bring. Those advantages include access from anywhere the internet reaches, which brings real-time data.
“Leading manufacturers are over three times as likely to have deployed their ERP solution in the cloud,” Castallina writes in his report. “Conversely, leaders are less likely to have deployed their solutions using a traditional on-line premise model.”
The ERP software vendor VAI reports its software as a service revenue has doubled each year for the past several years.
In the ERP’s Role in the Modern Manufacturer report, Castallina uses performance metrics based on criteria such as improvement in productivity and profitability to determine “leaders” and “followers” categories. Of the companies that were surveyed for this report, 35 percent of the respondents achieved leader status. Their performance grades were tied to factors such as improvements in on-time deliveries, inventory accuracy, and the cycle time of key business processes.
In an October 2016 report titled Top Performers Know It’s Time to Migrate to the Cloud, Aberdeen’s survey determined a higher percentage of organizations (not just manufacturers) are considering cloud-based ERP (59 percent) compared to on-premise (52 percent).
Of course, considering cloud-based ERP is not the same as deploying cloud-based ERP. However, according to Aberdeen research, in 2009 there were only 23 percent of their survey respondents that would consider a software as a service ERP option.
Among the top reasons that companies are considering cloud-based ERP is reducing IT costs. Beware of artful pretenses. Most cost-savings discussions are steered toward the avoidance of large upfront capital expenditures. However, a move to software as a service delivery will still cause a disruption, particularly when changing ERP solutions. And moving from on-premise to cloud means a change of how internal IT staff supports the software. When you consider the lifetime of the ERP system, the cost savings can be described as cloudy.
“The main thing is having ERP that supports the business. Some businesses are relatively steady and unchanging and are not looking to do all that much more. It’s not a major issue to replace their ERP,” Castallina says.
Advice: Assess your current processes and prioritize opportunities for improvement. Determine weaknesses and focus your modernization or migration plans on eliminating the weaknesses without giving up the strengths of a legacy system. Counter dictatorial decisions (my way or the highway) that are highly subjective with objective considerations based on ease of transition, disruptive impacts, reasonable estimations for deployment schedules, and cost.
When making your plan, consider the other business processes and technologies that are connected to your ERP and how they will be affected by modernization or migration developments. And don’t forget your database. There’s a high probability that if you are modernizing your applications, that your database needs modernizing as well.
Access to the Aberdeen ERP reports can be found at this link.