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In a press release late last year Gartner proclaimed, “By 2016, the impact of cloud and emergence of postmodern ERP will relegate highly customized ERP systems to ‘legacy’ status.” CIOs, it continued, “must take action to address the fast-approaching reality of ‘legacy ERP.’"
They go on to say the best game plan is to integrate cloud solutions on top of your core ERP system (or systems). Gartner is right, but they don’t provide clear, actionable direction on how to do it. Framing the discussion around the emergence of “postmodern ERP” makes it sound like there’s some cool new offering you can go out and buy to fix the problem. If only it were that simple.
What to do with these old ERP systems is an enormously painful, complicated, and expensive problem facing thousands of mid-sized to large businesses. What were once state-of-the-art solutions in the client-server based world of the ‘90s are clearly showing their age in the cloud and SaaS world of 2015. Everyone acknowledges that, including the software providers themselves. But companies are still in a situation where those applications are the financial heart of their business.
2016 is nearly upon us, given the enormous challenge, a great deal of companies remain frozen like deer in the headlights, not knowing what action to take with it comes to their existing legacy ERP deployment, while only small fraction have embarked on initiatives to rip these systems out and start over.
Deer that remain frozen will become roadkill, but ripping and replacing might not be the right solution either. I believe that the best current approach is to relegate these existing legacy systems as foundational systems of record, and then extending them with modern and innovative business applications designed for universal adoption. If there is a need for unraveling these legacy system for the longer term, that could then be done behind the scenes. Specifically, I suggest starting first with deploying low risk, highest ROI areas like modern spend management applications, which extend current ERP functionality and investment. But first, let’s explore the available options in depth.
Ripping your heart out
Option one, ripping your entire ERP system out and replacing it with a new one is like undergoing a heart transplant. It’s risky, expensive, painful and you’re going to be out of commission for a long time.
Back when these systems were installed, it required enormous effort and expense. Just buying the technology represented a huge capital outlay. So did implementation, which required the services of a team of outside experts, often for several years.
You also had to gain agreement between divisions of an organization to encode their common business processes, configure them, and still figure out ways to leave some flexibility for the longer term.
Additionally, technology has changed, but people haven’t, at their core. Today’s cloud technology is far less expensive and exponentially easier to implement, but to replace your entire ERP system you would have to spend an exorbitant amount of time and money redefining global processes and getting everyone on board and trained up. You’d also potentially have the added burden of having to map engrained processes in the old system to the new one.
The cost and disruption to the business would be massive, and would take so long that companies could buy other companies, sell off divisions, expand to new geographies or completely change their business models in the interim. Ripping your heart out is a tough way to go.
Deer in the headlights
Many people realize the challenges of a complete ERP replacement, but they don’t know what to do. They’re taking the second option. They’re muddling through, adopting a wait-and-see attitude in spite of a creeping awareness that these systems are acting, as Gartner puts it, “as an anchor to the business.” Every day that goes by, they lose ground to more agile upstarts.
CIOs could lose their jobs over inaction. It would seem that the most important thing to do is get started, assuming you don't have some major critical strategic priority that you have to get done first. The next most important question is ‘Where do you start?”
Considering the alternatives
The third and arguable best option is to relegate these existing legacy systems as foundational systems of record, and then extending them with modern and innovative business applications designed for universal adoption. If there is a need for unraveling these legacy system for the longer term, that could then be done behind the scenes. I believe the best place to start is spend management. But for the sake of comprehensiveness, let’s consider some other possibilities.
Many companies have already had success with cloud CRM, from Salesforce.com or cloud HCM from Workday. These are great cloud companies that offer solutions which can work in concert with existing legacy ERP deployments. Another option is starting with NetSuite’s two-tier ERP strategy, wherein some divisions and locations begin moving their sub-general ledgers and charts of accounts to the cloud. Each of these options offer a great way to start the process. But, which is the very best place to start?
The sensible approach
In my view, starting with cloud Spend Management makes the most sense for a lot of companies. You can replace a big chunk of key ERP functionality in areas where adoption traditionally has been the lowest. Purchasing indirect goods and services touches everyone in the company so adding an easy-to-adopt, easy-to-use solution here gets you broad exposure to the cloud. You can roll up procurement, accounts payable and related processes including inventory and contract management. It’s a single system you can layer over multiple and varied ERP instances, creating common processes across geographies and business units. The risk to the business is probably lowest here, since you don’t need to suck in core customer, employee, or financial data to start. Finally, the financial impact is quick and self-evident. The tighter management of indirect spend has a causal connection to bottom-line savings. The ROI is easy to measure.
Time to start
Gartner’s perspective is sound, and it’s time to get started. Ripping out and replacing your legacy ERP system may be far too risky and painful. Doing nothing might mean worsening pain for years to come. The only viable path forward seems to be a gradual unraveling of these legacy systems behind the scenes, while deploying cloud solutions that modernize many of the key processes they currently support.
The good news is there is an intelligent way to go about it. Spend management offers an exceptional starting point. You can achieve an easy win, and in doing so lay down the cornerstone for building your new ‘postmodern ERP environment.’ Just be sure to pick the right partner on this important journey. Let the unraveling begin.