ERP Customers at a Crossroads
When I talk to CIOs from some of the world’s leading brands that run ERP software, they are at a crossroads with their software strategy. The fundamental choice they must make comes down to this: Should they follow the vendors’ upgrade path or is it time to consider other options?
It’s not a simple question because the challenges these CIOs face today are unprecedented. Their companies have been burned by the rush to “stay current” in the past but they know they need to invest in digital transformations and analytics to improve the customer experience and run smarter in order to compete. At the same time, 89 percent of their IT budgets are gobbled up by ongoing operations.
How did we get here? In the 1990s and early 2000s when most ERP customers started their journeys, they bought into continuously upgrading their ERP software. No matter which release they started with, they often spent millions of dollars to get their ERP systems implemented. Along the way, giant software vendors listened to their customers and created real enhancements that delivered real value.
But over time as the software became more mature, the real enhancements that delivered real value slowed to a crawl, where for many customers support quality faltered. To add insult to injury, some ERP vendors raised maintenance fees and many customers revolted. During this time period, a vast majority of ERP users created customizations and integrations to give them a competitive edge.
Based on actual case data, 65 percent of customer issues are related to customized code, not the base vanilla software. These giant software vendors don’t support custom code, and some CIOs say that the very existence of custom code just gives their ERP provider an excuse to avoid delivering support.
Software doesn’t wear out so what makes it break? Once the vast majority of bugs are discovered in the new release of software, in let’s say 2 or 3 years after its general availability, what causes it to break? Two things:
1) You change the code or
2) You change the data
The software then sees conditions it has never seen before and can react negatively.
Turning Toward a New Innovation Agility Strategy
The good news is that ERP customers have excellent options today.
The first and most basic strategy that we’re seeing: many ERP customers take is a wait and see approach with regard to new software platforms the software vendors are developing. For these customers, we believe they should consider a third-party support and maintenance strategy to free up as much as 90 percent of their overall annual support and ongoing maintenance costs.
Still, there is an even better reason, and that’s to be able to implement an innovation agility strategy as a result of the customers’ move to independent support. With their ERP maintenance and support cost savings realized, CIOs can re-direct these funds into initiatives that really make a difference to their business.
Smart CIOs recognize the benefits of maintaining their stable ERP system, but instead of standing still, these CIOs focus their attention and energy on adding innovation around the edges of their ERP core. There is simply no complete ERP cloud solution available that can fully replace the robust ERP systems that have matured over 30-plus years.
By adopting a hybrid IT strategy for example – as many analysts, including Gartner and Forrester advise – CIOs are able to maximize the value they’ve already built into their core systems of record, and re-invest their considerable savings into digital systems of engagement that help their business grow and compete. With additional funds, organizations can make investments in best of breed technologies such as mobile, social, and big data, presenting a very strong business case.
The CIOs I talk to are really starting to like this strategy of keeping their core ERP and innovating around the edges. Plus, it’s an easy strategy to communicate that makes immediate sense. Consequently, CEOs and line of business managers are getting behind it, too.
An organization’s core goal is to maximize customer value while minimizing waste. Instead of optimizing a department or particular technology stack the old way, the IT department gets to take part in optimizing the movement of products and services through entire value streams that flow horizontally across technologies, assets, and departments to customers.
Instead of blindly following a path of vendor-dictated “mandatory evolution,” companies can choose a new path that frees up funds, frees up expertise, and focuses on overall value that has the power to deliver tangible business benefits.
From what I’m seeing and hearing out and about in the industry, more companies have arrived at similar crossroads and are turning toward strategies that maintain their core ERP while encouraging targeted investments in truly new applications. This sort of thinking really changes what a business can accomplish and in what time frame. It’s the kind of innovation agility that energizes me because – for the first time in a long time – it helps put organizations on a truly smarter path.
(About the author: Sebastian Grady is president of Rimini Street)