Equating replacing ERP to surgery, one analyst says too many companies wait until the ERP system fails to meet the company’s needs and do-or-die “brain surgery” is required.
It should never get to that point, according to Cindy Jutras, principal of Mint Jutras, a consulting company based in Windham, N.H.
“The whole concept of ‘rip and replace’ is a dirty word. People will avoid replacing what they have [at any cost],” Jutras said. But that shouldn’t be the case, given that the long-term benefits of having an ERP system that meets a company’s growing needs, is cheaper to maintain, and integrates more easily with future applications far outweigh the pain of replacing ERP.
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“In fact, replacing a poorly performing ERP or one that’s simply outdated is probably going to be a lot easier, and it’s certainly going to be a lot more beneficial in the long run than just taking what you have and trying to upgrade it,” Jutras said, adding that just because a company is using a recent ERP release doesn’t mean it’s providing the “latest and greatest” technology.
In her recent report, Is It Time to Purchase a New ERP?, Jutras contends companies are better served by deploying a new ERP system at the onset of significant pain -- think knee replacement, or something less life-threatening, she said -- instead of waiting for things to get worse. The reasons for replacing ERP can range from missing or limited functionality, unnecessary maintenance costs, or having to get by with outdated technology,. When any of those become too hard to handle, businesses should at least start exploring their options, Jutras contends.
Of course, whether a business needs an ERP replacement also depends on what it needs it to do. An existing system may be fine even if it doesn’t produce exceptional results -- if the business has no major need to grow or improve performance down the line, Jutras said. By the same token, sticking with legacy ERP can also make it harder for companies to react if conditions change at any point in the future.
“Don’t let your current ERP, or [even] lack of an ERP solution, become an excuse for poor performance or stagnation,” Jutras writes in her report.
But new ERP selection is still a challenge. What’s different now is that a growing number of companies see the value in having newer technology, according to Jutras.
“I don’t know that people think it’s that much easier,” she said. “But I think they perceive that it’s that much worthwhile.”
Why do companies replace ERP systems?
In the report, Jutras explains that in an online survey she conducted, 38% of respondents said their company had changed ERP systems in the past, citing reasons like lack of functionality, outdated technology or an inability to scale.
But when all respondents were asked why they might replace ERP systems in the future, respondents cited a litany of reasons. Roughly 51% said increased functionality was the biggest reason they would consider changing their ERP system in the future, followed by outdated technology (44%), cost savings (38%), as part of a consolidation strategy (25%), changing business needs (24%) and integration issues (21%). Other reasons include extensive customizations that prevented a business from keeping pace, and scalability issues.
Cost savings from replacing ERP
Merely upgrading an ERP system to a newer release won’t always solve a company’s problems, Jutras said, and changing the whole ERP may be necessary.
Why replace ERP? An ERP system that’s newer and includes greater functional depth should bring productivity gains. Other cost-related factors include the increasing amount of time needed just to keep up with industry standards beyond what’s required to address wear and tear, Jutras said.
Consolidating the ERP systems that a company has collected over years of mergers and acquisitions is another reason to consider replacing an ERP system, Jutras wrote in her report, noting that the average number of ERP systems for upper midsize companies is 2.9, and 4.8 in large companies. “Reducing the number of solutions supported across the enterprise can produce hard and soft savings,” she writes.
Dealing with ERP integration and customization
Businesses may want to rethink their ERP system if migrating to a newer platform built on service-oriented architecture (SOA) will make it easier to integrate with future applications, as opposed to the point-to-point, custom applications of the past, according to Jutras.
While owning a heavily customized ERP system may be one good reason for not implementing a new ERP system and redoing all the work, Jutras writes that advances in technology mean much of the custom functionality may now be available out of the box. That could eliminate costly support and maintenance and allow companies to take better advantage of new updates and innovation they’re already paying for in higher support and maintenance cost.
ERP replacement recommendations:
In addition to not waiting until the patient is dying, Jutras makes the following recommendations:
- Consider the cost savings. Need it but can’t afford it? Look at the long-term financial benefits. Most ERP systems pay for themselves within two to three years, Jutras writes. If capital funds are not available to support an on-premises project, consider a Software as a Service (SaaS) version, which usually has lower up-front costs. Survey respondents with SaaS implementations say they reached their first go-live milestone 19% sooner than those with on-premises systems.
- Set goals and measure. Before starting down the path toward an ERP deployment, decide which metrics are needed to measure success accurately. “Establish a baseline, set goals and measure progress against those goals,” Jutras writes. “When you reach them, set another goal. Continue to measure, and continue to reap more benefits.”