Everyone's talking about digital transformation these days, and for many companies, a key component of their digital transformation strategy is upgrading their core ERP. Most ERP vendors are promoting large-scale ERP replatforming projects as synonymous (or necessary) for innovation.
As part of an ERP modernization effort, companies are looking to leverage the latest technology and ongoing investments that vendors are making in their new cloud platforms. Unfortunately, for companies that have already invested millions in building out their ERP core, undertaking a migration is more than just an upgrade effort — it's a significant replatforming, investment, and business disruption. For many, the cost alone makes it an unrealistic option. For many ERP customers, it also means betting on a relatively immature platform that doesn't yet have the feature parity with their current ERP footprint.
However, an ERP upgrade or migration to a new ERP cloud platform is not the only path to innovation.
In Valoir's research looking at SAP customer strategies and how to maximize the value from their ERP investment, we've found that many are looking at ways to innovate and deliver more value from their existing ERP core without migrating to S/4HANA. We've analyzed the experiences of customers who have decided to move to third-party support as a means to reduce the overall ongoing cost of their ERP footprint, freeing up cash and resources to drive innovation.
Third-party support is enterprise application support that replaces the support provided by the software vendor as part of a software maintenance contract. The software vendor maintenance agreement is usually separate, or at least a separate contract line item, from the software license agreement which gives customers the ability to access and run the software. Today third-party support is provided primarily for SAP and Oracle enterprise resource planning (ERP) applications and databases that were originally licensed over the past few decades.
Innovation around the core
Third-party support first became an option in the early 2000s, when enterprise customers that didn't plan to upgrade their ERP or customer relationship management (CRM) deployments sought more cost-effective support alternatives than vendor-supplied maintenance.
The maturing of third-party support into an accepted mainstream market has evolved slowly over the past 15 years. While early customers were focused almost entirely on cutting maintenance costs and eliminating costly updates out of necessity, the widespread adoption of third-party support has happened not simply because of cost containment. IT leaders are using it as part of an overall self-funding innovation strategy while retaining control of their ERP roadmap.
We found that Rimini Street customers are using third-party support to accelerate digital transformation outside their core ERP, in key areas such as cloud, people apps (human capital management and customer relationship management), and intelligence and automation. They can maintain the availability, security, and performance of their ERP core while innovating around the edges, taking advantage of emerging technologies and their benefits without the cost and disruption of a core ERP replatforming.
Cloud applications are a key part of delivering ongoing innovation. We found third-party support customers are taking advantage of the flexibility and rapid time to value of cloud applications to deliver innovation in ERP-adjacent areas such as logistics and supply chain. Cloud applications deliver both lower initial ongoing costs and greater flexibility over time. Investing in cloud supply chain and logistics applications enables companies to drive costs out of operations and distribution, increase visibility into core data from ERP and other systems, and drive more rapid data-driven decision making. They also enable companies to more rapidly adapt and respond to changes in supply and distribution chain disruptions and take a more proactive approach to supply and distribution chain planning.
Customers are also leveraging their savings from third-party support to invest in people apps such as human capital management (HCM) and customer relationship management (CRM).
In the HR space, some third-party support customers are maintaining their original core applications for payroll and basic HR functions, such as PeopleSoft or SAP HR, and investing in modern HR applications for areas such as talent, benefits administration and management, and performance management. They are able to do this because the third-party support vendor's resources and updates help them to stay current on payroll tax and regulatory requirements without vendor support. Other customers are taking the savings from third-party support - often 50% of license maintenance fees and potentially up to 90% of their previous overall ERP maintenance burden - to fund HR transformation initiatives more broadly with modern cloud HCM applications, either from their existing ERP vendor or another solution provider.
In the CRM arena, companies are leveraging third-party support savings to invest in sales, service, and marketing technologies to better engage with customers. A key theme we found with Rimini Street customers was the ability to deliver on demands of the business because they were able to free up resources previously devoted to ERP-related support issues and case resolution. With more staff time available to devote to new CRM projects and initiatives, they were able to drive greater customer satisfaction and execute on the business's vision of customer-facing digital transformation — while keeping IT resources engaged and challenged. From a tactical perspective, top areas of innovation included building out a more complete customer 360, adding new digital channels for service and sales, and automating marketing processes.
Intelligence and automation
More broadly, companies found the move to third-party support enabled them to focus on developing skills and expertise in areas such as robotic process automation (RPA), analytics, and artificial intelligence (AI) — bringing data from their existing ERP core to drive more intelligent processes and decision making. In many cases, this drove greater partnership between IT and line-of-business managers, leveraging low-code and no-code platforms to develop new applications and automate processes that previously required manual work.
The historic challenges of IT leaders — IT-business alignment, finding budget for innovation, and managing risk — have not changed. What has changed in the past five years is the acceleration of digital transformation, and the need for companies to continue to invest in new technology and innovation not just to differentiate, but to stay in the competitive game. However, a broad, ambitious, and potentially risky ERP replatforming is not the only answer. As we've found in looking at the experiences of Rimini Street customers, companies can shift cash and resources away from maintaining and supporting their ERP core to devote to innovation. They can avoid a costly and potentially risky ERP replatforming, and take a more focused approach to digital innovation, investing in cloud applications to drive rapid benefits and ongoing improvements across operations, supply chain, distribution, and customer and human capital management.