ERP do or ERP die? CFOs weigh IT investment choices in Rimini Street survey

At diginomica, we hear a lot from vendors about the importance of moving IT systems to the cloud. And we hear a lot from businesses about the cost and difficulty of putting their long-running ERP and other transactional systems on that path — particularly when the vendor's proposed route is via migration to a much-changed new version. Increasingly, many of those businesses are pushing back and looking at other ways of achieving their goals. A survey published today by Rimini Street gives us a cue to take a look at some of the financial and technological factors in play here.

The global survey of more than 1,500 CFOs and senior finance leaders across 13 countries and a cross-section of industries provides the financial backdrop to these decisions. The topline messages from the research are that CFOs today overwhelmingly recognize the importance of digital transformation, but they want to see a clear business case and swift ROI from any such projects. The growing influence of digital technology in business means they're also keen to work more closely with CIOs to help achieve these goals. According to Hari Candadai, GVP of Thought Leadership at Rimini Street:

They see it as a two-way street. The CFO is becoming more technology savvy and the CIO is becoming more business savvy.

When asked for examples of IT projects that meet their business value and ROI criteria, the most popular choices named by CFOs in the survey were "optimizing existing technology investments" (44%), "revenue-generating technology initiatives" (40%) and "process improvements and employee efficiency" (39%). Against this backdrop, it's hardly surprising that CIOs are finding ERP migrations a tough sell and prefer to investigate other options.

Getting more out of existing tech

The top choice of getting more out of existing tech investments is particularly relevant. If an ERP system is still performing its core functions perfectly well, why not invest around it rather than spending large sums on a complete replacement? As vendor that specializes in helping enterprises maintain older ERP systems, it's not surprising to find this is a calculation many Rimini Street customers have made, as Candadai explains:

They're modernizing their ERP, around the edges of their ERP. They can't ignore it completely, but they are adding all these other technologies, like BI or mobile or any of the analytics solutions or procurement solutions, whatever they need. If they've sensed a gap in the ERP that may not be doing well, then they are innovating around the edges of their system.

So they're still modernizing, and ERP continues to be very relevant. The key point here is, they have a stable, robust system in place. How can we make it better? How can we take advantage of the faster, cheaper, more nimble technologies?

Meanwhile the technological backdrop offers a growing number of alternatives. Back in the 1990s, when ERP first became a thing and it was largely replacing either paper-based systems or older systems running on mainframes and minicomputers, networking was in its infancy. There's a very different scenario today, when being connected is a core part of the tissue of information technology and networking is highly sophisticated.

New options in a networked world

The argument that ERP vendors make is that, to play in this hyperconnected world, you need to upgrade from a platform that was designed as a standalone system to one that was built to perform well in a networked world. But that's not the only option, especially when the core system still works fine, because there are now many new ways of adding connections around the side, which let it continue to operate in this hyperconnected world without actually needing to be replaced.

Candadai says he is hearing this line of thinking increasingly from CIOs. He cites two examples:

As one CIO told me, 'This fits me like a glove. I have spent a lot of time customizing my system. It works perfect. Now for things that I need, I'm going to modernize the system around the edges. Why would I spend more millions of dollars to take it away?' ... 

In the words of another CIO, 'I will have my best and the brightest people tied up in these ERP upgrade projects, when I need them somewhere else. I need them in places where the business wants to grow. I want to invest in technologies that's going to help increase revenue, or decrease cost in terms of efficiencies, or take market share from competition' ...

'How can I get maximum life and value of what I have in place today?' — that's the sentiment, when you can absolutely innovate around the edges with so many great technologies that are out there today.

The survey suggests that CIOs will find CFOs ready to offer their support for digital transformation projects that are able to deliver business value on an acceptable timescale. Three quarters (77%) said they would help find a way to fund such projects, with over a quarter (28%) willing to argue the case at board level. But CIOs must engage their finance colleagues during the planning phase, with 88% wanting to be involved before the business plan is fully crafted.

The survey also found that relationships between the two functions have improved at many companies over the past year, due to the need to collaborate on urgent requirements during the pandemic. Most strikingly, 92% of CFOs in the survey agreed with the statement that "a successful CFO has a great relationship with their CIO counterpart."

My take

The conventional wisdom that's taken hold among IT vendors is that it's only a question of time until businesses finally migrate their ERP systems to the cloud. But there's mounting evidence that many are choosing a different path. This is not just Rimini Street talking up the market for its third-party maintenance solutions. Last week, Workday co-CEO Aneel Bhusri called cloud ERP "a total misnomer." His company is starting to offer a wrap-around finance solution to businesses in sectors such as manufacturing and retail who prefer to keep their ERP systems in situ.

When there are a growing number of offerings that can be bolted on to an existing system and offer rapid results, who wouldn't choose that path rather than embarking on a multi-year migration project that might not even deliver the expected results? The challenge for ERP vendors is that their hopes are pinned on an acceleration in cloud migration, but their customers have too many other options now.

This is not going to be like the 1990s, when the only choice was to replace one standalone system with another, with the potential fall-out from the Y2K bug providing a hard deadline for action. In today's networked ecosystem, the existing ERP core can simply be plugged into a tissue of interconnected systems that provide all of the transformative digital capabilities around it, while it continues to chug along doing what it's always done.

Even worse for the ERP vendors, in this scenario their ageing ERP software becomes a satellite to some other vendor's core system, where all the transformative data analysis, AI-infused automation and process acceleration takes place. One day some time in the distant future, the business case for ERP replacement will finally become clear, but by that time the original vendor will likely not even be in the running.

This technological backdrop has been evolving for some time, but it's been the experience of the pandemic this past year that has fully driven home the importance of moving forward with digital transformation. At the same time, the financial backdrop has sharpened the need to spend wisely and show rapid business value. Those trends are now converging in a pincer movement that could cause the major ERP incumbents a lot of pain as customers turn their attention to more compelling alternatives.