Denial, as they say, isn’t a river in Egypt. But many executives prefer to let their ERP system run as is, avoiding the expense and inconvenience of an ERP upgrade or -- gulp -- migration to an entirely new ERP system. After all, the stalwart application has been running the back office for years.
Although this attitude about upgrading ERP is common, it can be problematic. The truth is, companies may miss out on a host of business benefits by burying their heads in the sand. If they are running a legacy -- or less than up-to-date -- ERP system, they might be paying too much for maintenance. In this case, upgrading to a ERP modern system can bring welcome new capabilities and lower total cost of ownership.
Experts say there are unmistakable signs an legacy ERP system merits attention and might need an upgrade to the next version or a wholesale ERP migration to a new brand altogether.
More on planning an ERP upgrade
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First and most common: The system is on the brink of losing support. ERP vendors retire applications all the time to marshal their resources for the next generation of products. At the same time, some of their customers try to cling to applications past the expiration date because the specter of change can be overwhelming.
Companies in this category are significantly increasing their business risk, analysts say. Should something happen to the ERP system, they may have to pay confiscatory fees to a consulting firm to fix the problem. Worse, they could just be out of luck. Better to make a move now.
Another red flag: The application doesn’t do things users need to do their jobs. “Line-of-business executives today don’t understand what they’re missing, what they could gain if they had more technology, more functionality” such as business analytics, said Cindy Jutras, president of Mint Jutras, an ERP consultancy in Windham, N.H.
For example, according to a 2011 Mint Jutras survey of nearly 900 IT executives, organizations that upgraded their ERP systems realized benefits ranging from increased profitability to improvements in on-time delivery, reduction of operating and administrative costs, reduction in inventory and faster cycle times.
In another Mint Jutras survey, when asked the top reason their companies replaced ERP systems, 75% of respondents said they needed more functionality than was available under the old ERP system. The No. 2 reason, cited by 67% of participants, was the need to replace outdated technology.
Another consideration: The cost to maintain the ERP system. If the ERP system is based on older technology that was highly customized when first implemented, the owner may be able to reap serious cost benefits from an ERP migration, according to Brad Little, a vice president at Capgemini. “Systems were highly customized in the 1990s and they cost a lot to maintain. The systems were built to reflect the way they did business then,” Little said. Generally, the cost of coding to bring a legacy system up to today’s business processes is much more than just starting over with a new system, he added.
“Starting over, you can minimize customization as much as possible. You no longer have to preserve the workarounds and custom programming that was done then to meet people’s needs,” Little said.
Today’s ERP systems are generally more robust, capable and flexible than their predecessors, according to these experts. It is easier to migrate or re-implement an ERP system that is older than three major releases than it is to upgrade it. Such an approach also gives a better result than limping along with an application that requires calling in a team of COBOL programmers whenever a change is needed.
The bottom line: It’s unpleasant to face the reality that it’s finally time to upgrade or replace a well-used ERP system, but putting it off forever can put the business at risk.