But too many business executives are stuck dwelling on concerns about the initial investment, the implementation headaches, and the retraining involved.
Those are quite legitimate issues, to be sure, but as I’ve pointed out elsewhere, when a business leader decides to skip a major upgrade, the costs and effort associated with the upgrade are simply deferred, not eliminated. Meanwhile, by delaying the inevitable improvement, a business inhibits its efficiency and its bottom line. Analysis paralysis is not a viable strategy. The price of indecision becomes more exorbitant as time goes by.
New research on technical bankruptcy underscores the risk
Computer Economics has issued new research on “technical bankruptcy” that shows just how high the stakes are. Computer Economics President Frank Scavo argues that as many as 20% of enterprises are either in a ‘danger zone’, or might already be on the verge of or in technical bankruptcy.
Computer Economics lists five characteristics of systems that have reached “the stage of technical bankruptcy”:
- Extensive modifications, extensions, and interfaces.
- Poor understanding of the system by users and IT alike.
- Direct involvement of IT personnel in business processes.
- Legacy system atrophy as shadow IT emerges.
- Upgrade or replacement hard to justify.
The “extensive modifications” bullet jumped out at me as it should most experienced ERP users. Cloud ERP is intended to specifically address that issue, and help to avoid its recurrence. As diginomica’s Den Howlett wrote in his analysis of the Computer Economics report:
Cloud systems are owned and managed by the vendor so they get to determine the extent to which systems can be molded. In the on premises world which this report primarily addresses, it was always the case that customers anticipated a level of customization. The cloud world changed that because apart from anything else, economics alone prohibit vendors from making X,000 versions of the same software. I’d equally argue that in the 27 years since ERP emerged, modern functionality is perfectly capable of handling a good 80-85% of situations. That’s well within the bounds of acceptability, provided the business takes sufficient time over the change management aspects.
This has been an interesting phenomenon to observe. Change is the only constant and human beings are resistant to it, and yet most business-people are quick to seize upon any shifting market dynamic or process efficiency that yields greater profits. Many of today’s modern cloud ERP solutions provide the full flexibility and ability to make extensive modifications and benefits of customizability, but allow you to stay current with updates and upgrades with less effort than ever before. Why the reluctance to upgrade their ERP?
The many limitations of legacy systems
First, we see too many companies taking a patchwork approach to their legacy systems. They get persuaded by their traditional ERP vendor that new versions or add-ons can extend the life of old on-premises architecture. Given the realities of sunk cost and loss aversion, it can be hard not to believe this pitch, but the end-result is always a solution too hidebound and inflexible for the evolving requirements of 21st century business. It just means more systems to maintain and higher complexity to make any more changes or upgrades; it’s a downwards spiral.
Second, of course, no one wants to surrender the keys to their business engine. The ERP system is mission-critical. Downtime and implementation time could mean lost operating income. As small and mid-sized companies in particular start to grow rapidly, it becomes more and more difficult to find the time for an engine replacement. Instead, they keep driving the old clunker until it leaves them on the side of the information highway (car metaphor now duly beaten to death as well).
Finally, any number of small companies do business without an ERP system of any kind. They rely on manual processes, spreadsheets, or QuickBooks until those tools reach their functional limits. Even then, some companies still hesitate to implement Cloud ERP despite knowing there is redundant data in their business systems, those systems can’t interact with one another, and they have no way to track their business processes. They seem to believe that not having had an ERP solution in the past means they won’t need one in the future.
So why the reluctance to consider modern cloud ERP?
Any company that reaches a certain size will need to implement an ERP system to perform effectively.
A modern cloud ERP system can easily address all such reluctances. You are always on the latest version of the product and no more patchworks and dozens of systems to maintain. Just because you are in the Cloud does not mean you surrender the keys anymore. Modern Cloud solutions, share the keys with you. You still can own and fully control your data, you just don’t have to manage it.
With so many compelling reasons to modernize ERP, why do companies resist this change? I boil it down to a common root cause:
Any change introduces risks of functionality that used to work one way now working in a different way. It takes time and effort to learn what the changes are, conduct impact analysis with integrated systems, review customizations, and figure out a plan to perform the upgrade. Users must be trained on the new functionality and changes to existing ones. Setting up testing environments and conducting user acceptance testing can be costly and time consuming as well.
Our customers have found such issues can be minimized with proper planning. In other words, the fear of change is often greater than the change itself. However, there’s no denying that upgrades do take work. The problem is that you’re going to face that crossroads either way:
What businesses often do not consider is that avoiding upgrades requires far more effort and is costlier overall. When a business decides to skip a major upgrade, the costs and effort associated with the upgrade is simply deferred, not eliminated. The cost and effort involved with the next upgrade is then multiplied as the effort, impact, and complexities have become much larger than they were before.
The negatives pile up. The “technical debt” in the case of upgrade postponement could include:
- Falling behind on compliance - Changing regulations like SOC1 and ISO27001 require being on a current ERP version if you want to keep up.
- Security exposure – your system security is as strong as its weakest link. Older ERP systems can be fertile grounds for cybercriminals looking for easy access points.
- Difficulty troubleshooting technical problems, and losing out on community collaboration. Your peers are an invaluable resource, but when you’re on a much older version, it’s harder to tap into their advice.
- Missing out on functionality improvements should also be a concern – Adding insult to legacy, you end up missing out on important features added to new releases.
When you move to cloud ERP, you’ll not only modernize, but if it’s a SaaS-based architecture, you’ll be automatically included in future releases, avoiding a return to a state of technical debt in the future.
To build the case inside your company, you will want to develop a “future state” of operations that will energize the team and earn buy-in. Companies that run their businesses on Cloud ERP platforms perform better across key business metrics including Days Sales Outstanding (DSO), complete and on-time delivery, inventory accuracy, regulatory compliance, customer satisfaction and more. Their counterparts who use outdated ERP lag in comparison. It’s twice as hard to win when you’re at a competitive disadvantage.
Cloud ERP solutions are light years ahead of the old ERP systems from the 20th century. There’s no reason to wait. Indecision is expensive.
End note: if you want to get a bit deeper into the virtues of cloud ERP and how Acumatica approaches it, check out my webinar replay, Get to the Cloud with Modern ERP.