ERP or enterprise resource planning refers to software solutions that enable companies to manage large-scale business operations, covering key functions such as supply chain, financial management, manufacturing, inventory, business intelligence, and human resources (HR). The goal of an ERP system is to consolidate data from various sources of information within an organization, so that every department can make informed decisions efficiently.
ERP legacy systems are also known as on-premise ERP software applications. Techopedia defines on-premise ERP as “a company’s decision to source ERP software in-house and maintain it at a physical office.” Decades ago, ERP was the best solution for companies that sought to grow their business and streamline operations. ERP software applications offered the opportunity for highly customized solutions designed around an organization’s complex processes. Over the years that followed the acquisition of an ERP, a company would then have deeply integrated its operations with the functionalities of the customized software.
And while this most certainly has its advantages, it is now the root cause of the problem many organizations face with their enterprise software today.
Why do companies stick with ERP legacy systems
If investing in new ERP solutions is the way to go, why then do so many companies choose to continue working with their legacy systems? In a 2018 report from Panorama Consulting, 95 percent of respondents claimed to have improved their business processes with the implementation of a new ERP system. Despite this data, ERP modernization is still tough for many organizations, and achieving digital transformation in this area is a daunting task. Here are a few reasons many companies find it difficult to change their ERP legacy solutions:
Disruption of ongoing operations Companies whose operations are highly dependent on their ERP would need to be strategic about the implementation of a new solution. It’s not an easy undertaking and the disruption in regular operations could be costly for many organizations.
Decades’ worth of data and intellectual property
Switching to a new platform and the migration of huge amounts of data is a risky move for many organizations whose databases are perfectly functional--especially if they had been in use by the company for many decades.
Challenges in change management
A new tool means having to retrain the entire staff, and the fear is that not only will deployment take time; so will smooth adoption and implementation. Even before training can happen, many workflows, SOPs, and documentation will need to conform to the new way of doing things. It could take time before things go back to their optimal state.
Overall cost Technology Evaluation reports that ERP implementation could cost three to four times the projected budget. It’s true that if not managed well, companies could end up losing time, profit, and ROI.
How legacy ERP systems can impact company structure and processes
Lack of support
Because most ERP legacy systems are becoming outdated in terms of technology, at some point, vendors themselves will put an end to the investment in their own product. This means that the development of the ERP ends with the organization’s own capacity to support the technological needs of the system. And with technology advancing so rapidly, talent in the market shifts to new skill sets as well, while other tech skills become obsolete--including those required to support legacy systems.
Cost of maintenance
CIO claims that most companies will have spent more on maintenance than they originally paid for the software. On-premise ERPs require businesses to maintain hardware and infrastructure at their own cost, unlike cloud ERPs that have much of the computing power and systems maintained by the vendor. Due to the complexity of legacy ERPs and the outdated underlying technologies, they often require a lot of maintenance.
Teams deal with sensitive data every day. In an age where attacks on businesses happen digitally, relying on outdated technology for most of your business operations can be a huge security risk. Cloud ERP solutions whose business model is inherently tied to the secure hosting of data offer more sophisticated cybersecurity measures that are constantly in effect.
New regulations for businesses require a seamless system that can ensure monitoring and compliance. With complex legacy systems, implementation of change can be more difficult.
Apart from risks, not modernizing business operations can result in opportunity loss through the following:
- Automation - Legacy systems can make it very difficult to integrate new automation capabilities into business processes. Cloud ERPs allow for more computing power and upgraded software that can enable businesses to move faster with automation solutions.
- Innovation - All efforts spent on IT maintenance are lost opportunities for innovation. New ERP solutions also offer flexibility and more potential for integration with new types of technology that teams can use for talent management, recruitment, and performance monitoring and evaluation.
- Real-time data processing - The capabilities of cloud allow for more intensive data- crunching and analysis, which is critical in any organization’s decision-making process and data integrity.
How to transition to a modern ERP solution
Modernization of your enterprise tools is a massive change and requires a thorough analysis of your organization’s needs. Here are a few tips to help you in the process:
- Assess your needs as an organization. What are the critical functions and their interdependencies? Where are the areas of complexity? What does this modernization really mean for your business? Identify what you want to focus on and how far you want to go.
- Be agile in your method and mindset. You don't always have to start with a full-blown transformation. For example, you might want to transition one key component at a time. Where can you start your migration? Is there an essential but less critical area of business operations you can test on a new solution?
- Choose the right vendor according to your needs. Establish the criteria based on your business priorities. Do they have the right capabilities? What are some non-negotiables? For example, are there integrations that need to be supported? How involved would you like the vendor to be in the effort?
- Prepare your organization for change. Evaluate how digital transformation can fit into your company's values and culture. Be clear about the requirements, but equip your organization with the right tools and training as well.