Legacy ERP adds pain to global expansion – how to avoid it

Profile picture for user Craig Sullivan By Craig Sullivan December 28, 2015
Global expansion is imperative for many businesses today but legacy ERP can get in the way. NetSuite's Craig Sullivan explains the pain and how to avoid it

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In many ways, growing into a global business has never been easier. A single craftsman with an ecommerce site and access to UPS can suddenly find himself with a global customer base.

Indeed, global expansion is a near-imperative for businesses today as a more connected world has created access to a globally integrated network of not just customers, but labor, suppliers and manufacturers. Moreover, the ease of doing business across borders, through more tightly integrated regional trading blocs such as the ASEAN Economic Community, has now removed some of the biggest hurdles to global expansion.

Yet, despite the wonders technology has done in enabling global expansion, these efforts tend to wreak havoc on financial systems. We’ve seen it all too often and it follows a familiar and predictable path.

When success breeds complexity

Businesses see opportunities outside of their domestic market and begin selling to customers abroad. That initial phase often demands a customization to the ERP system to factor in multi-currency accounting and more. Many businesses also wind up adding new systems to account for a new channel, such as an ecommerce site.

Once they start seeing results, they begin adding new offices and overseas subsidiaries. That demands further customizations to account for the new legal structure. Further, for businesses running on-premise ERP, they now have to reimplement the software in its new locations. That turns into a vicious cycle as success abroad leads to the opening of more and more subsidiaries and offices that once again need new customizations and new implementations.

Given enough success, businesses will bring on local resellers, introducing greater distribution but also new business complexity. Ultimately, global businesses turn to acquisitions to continue their global expansion, which means entirely new systems requiring complex integrations.

Systems that can’t adapt

Once they’ve reached that kind of scale and complexity, these global businesses discover the difficulty in adapting to change. Upgrading these large, cumbersome systems with multiple instances all over the globe, requiring extensive customization and complex integrations, introduces significant business disruption. Rather than face the disruption of successive upgrades, these companies often wind up with software that is several generations behind.

Furthermore, it’s equally difficult to make any sort of change to the business. These complex systems tend to hold business back rather than enabling change. When new market opportunities emerge that require new business models or when new competitors appear, these global businesses have to account for the millions of dollars and, in some cases, years of system integration work to adapt their ERP system to the new reality.

Perhaps no industry has borne the burden of legacy IT systems the way that retail has.  Established retail businesses that added systems to serve specific channels (such as ecommerce and point of sale) are discovering that, as they expand into new geographies and disruptive competitors emerge, they face new demands for personalization and the customer experience. Today’s consumers demand an omni-channel experience and will quickly abandon a brand that they have long been loyal to if it can’t provide that. Yet their disconnected systems spread across the globe severely restrict retailers’ ability to adapt to new customer demands at the pace of modern business and stay ahead of the competition.

Brian Sommer touched on some of these challenges for legacy systems when he wrote that Old ERP is way past its “Best When Used” by date.

Two-tier is an option

Businesses have been able to mitigate some of their difficulties with a two-tier ERP approach, where they keep the legacy, on-premise ERP system at headquarters with its huge sunk costs in maintenance mode, and use more agile, cloud-based ERP systems at new subsidiaries and offices.

This aligns with some current thinking around bimodal IT. Typically the legacy on-premise systems are left alone to manage core business operations in what is referred to as Mode 1, while the more agile systems that can be deployed quickly are used to enable new business opportunities and growth, referred to as Mode 2.

For example, when Shaw Industries, the world’s largest carpet manufacturer, looked to open a 210,000-square-foot manufacturing plant in Nantong, China, it implemented cloud ERP to manage the facility and ten subsidiaries in Asia and integrated that with its Oracle system at its headquarters in Dalton, Georgia.

Going cloud globally

Yet it isn’t all two-tier. Some businesses are turning to cloud ERP to run their entire global business. When Misys, the global provider of banking, treasury, trading and risk software, sought to replace disparate systems it had amassed through growth and acquisitions, the global nature of its business was a key consideration. After all, Misys operates more than 150 subsidiaries in 70 countries.

Similarly, when American Express Global Business Travel, spun out of its parent company and needed to move off of its existing systems, it needed something that could deal with the complexity of a business that spans 140 countries. It turned to a single global ERP system that could manage those subsidiaries and provide comprehensive tax compliance for countries around the globe.

The business of the future is one that knows that today’s operational requirements can quickly become tomorrow’s albatross, preventing the efficient execution and constant redefinition of go-to-market and customer engagement models. Those businesses choose systems with the notion of agility and the need to evolve and change at the top of their selection criteria.

The businesses of the future listen closely to their customers and to the market to ensure they remain vital and relevant to their customers. It’s those businesses that will thrive.

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