Does this sound familiar? I know I’ve been in this conversation:
Corporate Executive: “Brian, we’re really excited to be moving our ERP to a new platform.”
Corporate Executive: “It’s modern! It’s cloud-capable (although we’ll be running it single-tenant, on-premises)!”
Me: “And what will this do for your firm?”
Corporate Executive: “Well, someday, we might want to do some business transformation work and this application platform could help with that.”
Me: “Why not skip all that expense and heartache and go with other solutions that help with the business transformation now?”
Corporate Executive: “But, we’ve had this ERP solution for over 20 years!”
Me: “Again, why do this if it won’t deliver real value now?”
I get it. Some of you are really attached to your ERP solution. But the reimplementation of those solutions every few years is an exercise in chasing diminishing returns.
“Package-ectomies”, where you swap out one application for another with materially similar functionality, are rarely advantageous. The customer incurs a lot of implementation risk, significant costs, potential business disruption and few economic benefits. This is why vendors sell these upgrades on a TCO (total cost of ownership) not ROI (return on investment) basis as they know these things are a stinker from an investment perspective.
What’s even more amazing is the sheer gall of software vendors to charge your firm for, in effect, an all-new license/subscription fee for essentially the same solution. Yes, it has a new ‘platform’ under it but isn’t that what the decades-long maintenance payments were supposed to pay for?
The re-platform epidemic today
Most any ERP vendor that was around pre-2000, has older customers who have old solutions installed. Now, some of these ERP firms have created newer, multi-tenant cloud versions of their products and would like to see these customers upgrade to the newest versions of the software.
But, like we say in Texas: “Wantin’ and gettin’ are two different things!”
Vendors want to see these upgrades happen as supporting those older solutions can be expensive. They also know that forcing customers to re-buy their software every 10 years or so is very good to their bottom line. There are other incentives for vendors to push these newer products but the economics for customers are pitiful.
So, vendors do what they do best: market the new version. And the marketing around these updated ERP’s is reminiscent of how lawyers see a case: “If you’re weak on the law, argue the facts. If you’re weak on the facts, argue the law. And, if you’re weak on the law and the facts, get emotional!” Today’s ERP vendors are weak on the economics and want to argue the potential power of their platforms. Unfortunately, those platforms are pretty weak, too, so we’ll see vendors getting emotional.
But are the platforms really that weak? Technically, they might fill many business needs but many have some issues. These include:
- Few vertical solutions are pre-built on these platforms – back office functionality is generally supported though
- Few vertical solutions possess rich IoT and other advanced technology to support, out of the box, Factories of the Future functionality
- The need to hire expensive integrators to integrate and configure these solutions to use non-transaction data
- An inability to elegantly and immediately utilize big data, dark data and data feeds from external sources
- Too few pre-defined and reimagined processes and workflows
- Too few out of the box anomaly detection programs
- Machine learning tools that are difficult for customers to understand or modify
What these platforms look like are tool kits. They have interesting components that customers and integrators have to build something with. It’s like walking out to your driveway and find it covered in auto parts and tools. What you want is actually a gas-upped, assembled and running Porsche not a gigantic do-it-yourself kit car. That’s the immaturity in these platforms. It’s an immaturity that’s making the economics of these ‘upgrades’ unpalatable.
So, what does a vendor do? No, it doesn’t get emotional but it does ‘spin’ its marketing messages. It touts the future power of its platform. Unfortunately, that message means an ERP customer will spend a lot of time and money implementing a technically upgraded solution but the value they really need from it will be delayed until a later date. And, at this time, no one knows what it will actually cost to see that delayed value materialize. This means a customer will spend a lot of money now and an unknown amount later for an unspecified value delivery. That ambiguity would be hard to sell to most executive committees or boards of directors.
But why is the call to re-platform so prominent in vendor messaging today? Most likely it’s because it is the only drum the vendors have to beat. And, it’s an imperfect drum.
Vendors and vendor marketers often lack real business transformation stories. They might have some re-platform stories to share but real earth-shattering transformation pieces are as rare as hen’s teeth. Conflating re-platform projects with business or digital transformation nomenclature is an old marketing practice but it’s a Potemkin Village: all hype and no underlying substance.
An essential aspect of these pitches is the vendor’s ability to paint a rosy after-life story: how great your firm will be after it re-platforms and eventually starts to use some of the planned new capabilities. If there’s something vendor marketers know how to sell its future-ware, vision-ware, etc. There’s a lot of that going on right now. Remember folks: a re-platformed ERP is not a Factory of the Future in the box.
Delayed Value Realization (DVR) or Delayed Valu-ization
Many firms that implement these new ERP platforms may realize little, immediate value – especially if their processes remain essentially unchanged. Yes, they might eliminate some technical debt that they’ve amassed over the years. But, re-platforming alone just gives you the old functionality/processes on a newer technical environment. Overall productivity, efficiency and effectiveness will be little changed and whatever changes that do occur will likely fail to offset the implementation costs and risks required to implement the new platform.
And yet, ERP marketers who want to push their products have developed messaging (or a conceit) to convince prospects that:
- Re-platforming their ERP is an essential first step to digital transformation (not necessarily true statement by the way and remember, digital transformation and business transformation are two different, distinct things) – Step 1
- After the ERP is re-platformed, then new advanced capabilities can be supported – Step 2
Some IT shops and systems integrators are promoting the first step aggressively. These projects are pitched as necessary, critical first steps to a new digital future. Worse, some firms seem to want to wave victory flags (or “Job Done” signage) at the completion of step 1. That’s a mistake as the real value only begins to appear when once the second step is completed. This is like:
- claiming to have experienced a great vacation when all you’ve done is buy a new suitcase; or,
- a relay racer dropping out after the first leg and declaring victory
Step 1 without step 2 ensures value will be delayed or unrealized altogether.
Re-platforming ERP is but one of the bad ERP strategies out there. We’ve already seen ERP firms abetting customers in moving on-premises ERP to a public cloud (via a hyperscaler) . Likewise, there are sales efforts going into helping customers move ERP applications to private clouds and to single-tenant instances of public clouds.
Whether the applications are moved to different servers or to new platforms, these are lateral moves. They are studies in incrementalism. These projects may offer only a small bit of digital transformation and little to no business transformation.
When is re-platforming justified?
In some situations, re-platforming ERP may be warranted. If your firm has become the proud owner of numerous ERP systems as the result of decentralized decision making, acquisitions or mergers, then a case can be made for standardizing on a single ERP environment.
One firm that I’m close to was recently told by a profit-improvement management consultant that they needed to create a new performance metric for this firm: ERP’s per Employee. You name it, this firm has one installed somewhere in their empire. This is an organization that needs to standardize as its data is a mess. Accounting data, cost accounting data, supply chain information, etc. is everywhere and none of it is standardized, comparable or compatible. They need to change their diverse ERP systems to a new solution.
Colleague Jon Reed recently documented Penn State’s recent move to SAP S/4 ERP. The potential for major systems failure appears to be the precipitating driver for the change. This quote encapsulates well why they are doing this project:
Several months after I arrived, I went to President Erickson, our President at that time. I said, "Rod, I think the university needs to make a substantial investment in upgrading its core ERP systems, or we stand to have a significant failure." And, and he said, "Well, what do you think it would take David?"
I said, "Well, I think it would probably require a capital investment of something in the neighborhood of $200 million." He said, "Okay, well, let's let's go do it" - and that began our journey.
Other firms will justify a re-platforming due to their firm materially outgrowing their old solutions or finding their firm has contracted materially in size (e.g., from a big divestiture). Some firms will need to re-platform because their old, really old ERP solutions are years or decades out of date. Their technical debt is now at risky levels and a new implementation could be faster and cheaper that trying to apply scores of long overdue upgrades.
All of these are valid change reasons. But, change for change sake is not.
The wrong discussion
Re-platforming ERP may not the correct discussion or strategy for many firms.
The first question CIOs should be asking is: “Can we ring-fence the old ERP and do our transformative initiatives with new/non-ERP technology?” The advantages to this approach are that the new solutions:
- add value very fast
- identify all-new value creating opportunities
- install in weeks not year(s)-long implementations
- are often configured by non-IT personnel
- do not disrupt existing systems
IT departments should be looking at solutions that address the white space around old-school transaction processing systems instead of automating the same transaction processing systems again. Solutions like Celonis examine processes and learn from the way activities are completed. There are also solutions (e.g., Robotic Process Automation) to automate routine transactions entirely and eliminate human interactions. Add to this powerful chat bot, ML/AI-enhanced workflow automation, automated exception handling, etc. and many processes will get a bit more digital and smarter.
But those are just the entry stakes to what IT should be bringing into the enterprise. The new solutions shouldn’t just be designed for sensor and other big data. They should come with pre-built algorithms, anomaly detection, detailed vertical industry process designs/analytics/metrics/briefing books, integrations to machines/equipment/devices, etc. that are frequently used in that industry. The key is that these capabilities may already exist from non-ERP vendors and do not require large consulting engagements to connect everything.
New solutions should be focused on solving today’s (and tomorrow’s) problems not yesteryear’s. That alone speaks volumes as to the ineffectiveness of many ERP solutions for solving today’s real business issues and delivering new kinds of value. New kinds of solutions should provide the opportunity to re-position the firm for tomorrow’s business opportunities and needed capabilities. You can’t deliver radically reimagined business processes and all-new business models off of a transaction processing application suite that’s configured to operate the way it has for the last 20-30 years.
New solutions should also facilitate the company’s growth objectives without adding headcount. Let that sink in for a moment. If a re-platformed ERP can only deliver a small amount of productivity savings, then as the firm grows it will need to grow headcount in each of its process areas in a similar growth pattern. But, if the company uses new technologies that move transaction processing to an automated level and eliminate much of the non-value-added or low-value-added human work, then organic growth can occur without adding more headcount. This is especially true for back office functions like HR or Finance.
IT should ask:
- Why re-platform ERP?
- What’s in it for our firm? (We know what the vendors and integrators get out of these deals)
- Have we done enough research to see what other kinds of solutions are out there and what value-creating opportunities are possible?
- What are the leading competitors of ours doing instead of re-platforming ERP?
- What technologies are fast-growing, venture-backed new competitors are using?
- Can’t we use third-party maintenance to keep our old ERP technically relevant while IT delivers radically newer solutions?
- What are the most cost-effective ways to introduce new capabilities without re-implementing ERP?
In an aptly titled piece “Digital transformation - ERP upgrade not required”, analyst Rebecca Wettemann noted that firms can keep their old ERP and use a third-party maintenance solution like Spinnaker or Rimini Street:
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.
The unspoken cost - opportunity cost
What no implementer or vendor wants to discuss is this: there’s an opportunity cost associated with these re-platforming projects. The people, time and costs that are going into these low-value add efforts are diverting capital and people away from potentially higher value projects. The best businesses will focus on technologies that deliver both great value and deliver a great strategic outcome.
All of the time and capital spent on an ERP re-platform increases the probability that:
- Competitors can move and grab market share while the company is pre-occupied with modernizing the technical underpinnings on its traditional transaction processing applications
- The company reinforces the old processes, reports, etc. of an increasingly less relevant era
- Business rigidity (not agility) continues
In contrast, many smaller, less risky and potentially cheaper efforts could have been undertaken during this same timeframe. This is the opportunity cost. Those new technologies would permit:
- Radical reimagination of processes, workflows and decision-making activities
- The automation of decisions and more thus freeing up employees’ time to work on more strategic initiatives
- The launch, tuning and evolution of new business models
- Faster decision-making times
Many companies are feeling a lot of pressure to re-platform their ERP software. The source of that pressure is coming from the vendor as some vendors have established drop-dead dates for old products. Some vendors now only offer a very limited and minimalist level of support for older (read: on-premises) products. They will keep those products alive technically but starve them from any new functional enhancements. Vendors create these frustrating customer experiences to motivate you to upgrade.
Smaller customers may have no recourse when a vendor takes these unilateral actions. Their choice is to either upgrade or seek true love elsewhere. We’ve only seen some limited success in influencing vendor behavior when large numbers of customers, especially larger customers, push back.
Vendors will shove you around unless you stand up for yourself.
Drop-dead dates are a type of ultimatum. I would never recommend a client accept one of these until they’ve thoroughly investigated all manner of other options, including a full ERP software selection project to assess what is today’s art of the possible. Customers should also evaluate all manner of alternative solutions/tools and determine if a ring-fencing of the old ERP while surrounding it with more powerful third-party tools is a more cost-effective and beneficial solution.
Customers should also challenge their systems integrators/implementers. Remember, they will act in their self-interest and not necessarily yours. Are they pitching this re-platform project because it’s good for their bottom line or yours? Look at their conflicts of interest: are they getting a cut of your lifetime subscription payments to the vendor? Is this implementer bringing other solutions to you for your consideration? If not, get a new “partner”.
While I hate to quote my own prior pieces, this advice from a few months ago is still very relevant:
CIOs or IT leaders are putting a lot at risk if they don't handle this upgrade decision well. Great CIOs will be prepared and will have:
- Done a significant amount of research on many different ERP and non-ERP options. Great complementary solutions such as Uptake, Aera Technology, or Noodle.AI are out there. Have you fully explored the art of the possible?
- Designed radically re-engineered or reimagined processes and, after these have been created, have different ERP vendors demonstrate how they do or do not support these.
- Conducted extensive reviews of software and services proposals to understand costs over the next ten years fully.
- Made a thorough review of the project risks and planned how the company mitigates identified risks.
- Correctly understood how this effort ties into the company's long-term strategic objectives.
- Created a bulletproof presentation book for the executive committee/board of directors.
In the end, the CIO must address this fundamental question: "Who decided this is THE path that the company must undertake and NOW?"”
Yes, who decides this needs to defend this. Good luck….