In a press release late last year Gartner proclaimed, “By 2016, the impact of cloud and emergence of postmodern ERP will relegate highly customized ERP systems to ‘legacy’ status.” CIOs, it continued, “must take action to address the fast-approaching reality of ‘legacy ERP.’"
It goes on to say the best game plan is to integrate cloud solutions on top of your core ERP system (or systems). Gartner is right, but doesn’t provide clear, actionable direction on how to do it. Framing the discussion around the emergence of “postmodern ERP” makes it sound like there’s some cool new offering you can go out and buy to fix the problem. If only it were that simple.
What to do with these old ERP systems is an enormously painful, complicated, and expensive problem facing thousands of mid-sized to large businesses. What were once state-of-the-art solutions in the client-server based world of the ‘90s are clearly showing their age in the cloud and SaaS world of 2015. Everyone acknowledges that, including the software providers themselves. But companies are still in a situation where those applications are the financial heart of their business.
The year 2016 is nearly upon us, and given this enormous challenge, a great many of companies remain frozen like deer in the headlights, not knowing what action to take with their existing ERP systems. Deer that remain frozen will become roadkill, but ripping and replacing isn’t the right solution either. A handful of companies have embarked on initiatives to rip these systems out and start over. I believe that the best approach is to relegate these existing legacy systems to foundational systems of record, while extending them with modern and innovative business applications designed for universal adoption. That can quickly extend current ERP functionality and investment, and if there is a need to unravel these legacy systems over the longer term, that could then be done behind the scenes.
Specifically, I suggest starting by deploying the lowest risk, highest ROI applications, such as modern Spend Management.
Ripping your heart out
Option one, ripping your entire ERP system out and replacing it with a new one is like undergoing a heart transplant. It’s risky, expensive, and painful and you’re going to be out of commission for a long time.
Back when these systems were installed, it required enormous effort and expense. Just buying the technology represented a huge capital outlay. So did implementation, which required the services of a team of outside experts, often for several years. You also had to gain agreement between divisions of an organisation to encode their common business processes, configure them, and still figure out ways to leave some flexibility for the longer term.
Additionally, technology has changed, but at their core, people haven’t. Today’s cloud technology is far less expensive and exponentially easier to implement, but to replace your entire ERP system you would have to spend an exorbitant amount of time and money redefining processes and getting everyone on board and trained up. You’d also potentially have the added burden of having to map processes engrained in the old system to the new one.
The cost and disruption to the business would be massive, and would take so long that companies could buy other companies, sell off divisions, expand to new geographies or completely change their business models in the interim. Ripping your heart is a tough way to go.
Deer in the headlights
Many people realise the challenges of a complete ERP replacement, but they don’t know what to do. They’re taking the second option. They’re muddling through, adopting a wait-and-see attitude in spite of a creeping awareness that these systems are acting, as Gartner puts it, “as an anchor to the business.” Every day that goes by, they lose ground to more agile upstarts.
CIOs could lose their jobs over inaction. It would seem that the most important thing to do is get started, assuming you don't have some major critical strategic priority that you have to get done first. The next most important question is ‘Where do you start?”
Deciding where to build
The third and arguably best option is to retain these existing legacy systems as systems of record, and extend them by building on top of them with modern application. I believe the best place to start is Spend Management. But for the sake of comprehensiveness, let’s consider some other possibilities.
Many companies have already had success with cloud CRM from Salesforce.com or cloud HCM from Workday. These are great cloud companies that offer solutions that can work in concert with existing legacy ERP deployments. Another option is starting with NetSuite’s two-tier ERP strategy, wherein some divisions and locations begin moving their sub-general ledgers and charts of accounts to the cloud. Each of these options are good ways to start the process. But, which is the very best?
The sensible approach
In my view, starting with cloud Spend Management makes the most sense for a lot of companies. You can replace a big chunk of key ERP functionality in areas where adoption traditionally has been the lowest. Purchasing indirect goods and services touches everyone in the company so adding an easy-to-adopt, easy-to-use solution here gets you broad exposure to the cloud. You can roll up procurement, accounts payable and related processes including inventory and contract management.
It’s a single system you can layer over multiple and varied ERP instances, creating common processes across geographies and business units. The risk to the business is probably lowest here, since there’s no need to suck in master customer, employee, or financial data to start.
Finally, the financial impact is quick and self-evident. The tighter management of indirect spend has a causal connection to bottom-line savings. The ROI is easy to measure.
Time to start
Gartner’s perspective is sound, and it’s time to get started. Ripping out and replacing your legacy ERP system is far too risky and painful. Doing nothing might mean worsening pain for years to come.
The only viable path forward would appear to be a gradual unraveling of these legacy systems behind the scenes, while deploying cloud solutions that modernise many of the key processes they currently support.
The good news is there is an intelligent way to go about it. Spend management offers an exceptional starting point. You can achieve an easy win, and in doing so lay down the cornerstone for building your new ‘postmodern ERP environment.’ Let the unraveling begin.
Rob Bernshteyn, CEO of Coupa