In today’s rapidly changing economy, for businesses to remain competitive it’s become critical for them to achieve organizational transformation through technologies.
Modern Enterprise Resource Planning (ERP) systems can deliver on that need with a fully integrated solution that is more cost-effective and flexible than most legacy systems, allowing businesses to effectively meet the demands of changing needs and ongoing growth. .
While legacy ERPs are fully capable of being modified and enhanced to meet today’s business needs, sooner or later every organization will land at the same question: Is it time for an ERP upgrade?
Often that question is triggered by an increasing awareness that bigger and better solutions are available. Other times it’s born from doubt, that nagging feeling that your system isn’t delivering the benefits it could be. And other times it’s obvious there are things you need to do to stay competitive that your legacy system can’t handle without a significant investment of time and money.
Whatever the reason, when you begin to question whether it’s time to upgrade your ERP, here are five things to consider that can help determine if now is the right time for your business.
1. There Is No Perfect ERP System
Because technology is constantly improving and evolving at an unprecedented rate, it can feel like a perfectly capable system is outdated or inferior. Too often, organizations waste valuable resources in pursuit of the perfect ERP, believing that their legacy system is somehow deficient and inhibiting growth.
But there is no perfect ERP, just the right ERP for your needs.
Part of the problem is the term legacy ERP, which is used to describe almost any installed system and implies outdated technology. However, assuming regular maintenance, updates and upgrades, many legacy systems are capable of adapting to the changing needs and requirements or your business.
If you start to notice shortcomings with your ERP, first make sure your system has all of the recommended updates and releases. Next, ask your vendor if add-ons or enhancements could solve the issues you’ve encountered.
What kind of investment would those upgrades require in time and money? Depending on the answer, it may be clear whether it’s more cost-effective to implement the fixes or replace your current solution.
Bear in mind that cost is about more than price. Add-ons and enhancements may only get you so far. If they’re not able to satisfy your business requirements and truly support your company and customer needs, the long-term cost could outweigh the initial investment in a new system.
Conversely, a new ERP solution will likely provide benefits that don’t show up on the balance sheet – from increased efficiency and productivity to improved visibility and agility – and allow you to remain competitive.
2. Is Your Current ERP Meeting Your Company and Customer Needs?
As with most technology, a telltale sign that it’s time for an upgrade is when your current solution starts to increasingly become more of a problem than a solution. When your ERP system starts failing you in critical ways, it’s time to seriously consider an upgrade.
Some possible areas of concern that should raise red flags include if your system is:
- Costly and difficult to maintain and support
- No longer adequately supported by your vendor
- Unable to meet new requirements or can only do so within limits
- Only capable of supporting new technologies or requirements with difficulty, high cost and delays
- Difficult to learn and use, making it a solution that inhibits rather than supports efficiency
- Cumbersome, plagued by slow response time and inadequate storage and retrieval of information
- Aging to the point that it requires specialized support from a shrinking pool of programmers with knowledge of it
Typically, these problems evolve and mount slowly over time, often going undetected until serious business problems arise. At that point, there’s a rush to do something — and that’s never a good way to make smart business decisions. But if you look for these issues along the way, you may be able to better plan without the extra pressure of urgency.
3. Your Current ERP Costs
When they finally sit down and do the math, many companies are surprised by what it truly costs to keep their existing ERP system operational. That’s because, in addition to the direct costs most business leaders are aware of, indirect costs are associated with an ERP.
As the term suggests, direct costs are fairly obvious. They’re the monthly and annual fees paid to your software and hardware suppliers, as well as any ongoing costs for support from various service providers and consultants that help keep everything up and running smoothly.
Aside from those ongoing fees, you also need to account for any additional costs incurred from upgrades and maintenance needed to keep your system up to date, as well as any enhancements needed to resolve existing or anticipated issues.
Additionally, there are a number of costs to consider related to your IT department, such as salaries and benefits, space, utilities and supplies. If at all possible, try to separate out those internal IT costs that can be tied directly to supporting your ERP.
These internal support costs can be particularly important if your team has to invest extra time and resources into an underperforming system.
4. The Cost of a New System
One of the primary factors that prevents many businesses from upgrading to any new technology is anxiety over the potential cost of changing systems. That’s understandable, as it’s a significant investment. And a new ERP system would likely represent one of the largest expenditures a company would make during the year.
Yet that investment needs to be viewed in the context of the benefits that will be realized in the form of efficiency, productivity and visibility as well as the amount of time, money and resources being spent to maintain the current system. It’s also important to think of it in terms of life cycle costs — the total cost over its lifetime, not just the initial upfront investment.
When considering the cost of a replacement system, the price of hardware and software licenses is only one part of the equation. Be sure to also include:
- Networking and peripheral devices, like barcode scanners, remote entry stations, mobile devices and client software plus support
- Data conversion and data entry to the new system
- Archiving and accessing historical records
- Disaster preparedness, including backup or failover systems, data recovery resources, redundant connectivity and communications
- Education and training
- New workflow development and documentation
- Increases in payroll for overtime worked during implementation or the hiring of temps to assist with work while your team focuses on the implementation
Lastly, it’s important to understand the differences in cost structure between a cloud-based SaaS ERP an on-premises system. With an SaaS subscription model, there’s little or no upfront cost for hardware. Your contract also includes ongoing maintenance and support, which will greatly reduce your in-house IT costs.
In the short term the amount of money needed to implement a SaaS cloud ERP is much less than for an on-premise solution. Even beyond a 5 year time frame the total cost of a SaaS solution is less.
5. Getting Buy-In
An investment of this magnitude, which will impact nearly every corner of the organization, requires buy-in from key decision-makers.
That starts with a comprehensive cost-benefit analysis that clearly lays out the expected return on investment (ROI).
While the cost part is fairly straightforward, the benefit can be somewhat more abstract. Yes, there will be savings that can be directly attributed to a reduction in IT costs and a decrease in required maintenance.
However, some of the most important ROI may require leadership to imagine how the new system will transform the company and enable key outcomes that can help pave the way to growth.
An integrated ERP has the ability to provide a robust end-to-end view of key business functions – from finance and human resources to supply chain and customer relationship management (CRM). As a result, organizations realize a number of benefits across operations, including improved:
- Performance
- Efficiency
- Productivity
- Agility
- Visibility
- Customer service
- Customer experience
- Employee experience
While an ERP may not directly produce all of these benefits, it will organize, analyze and present data in such a way that allows you to better use people and make better business decisions, leading to highly desirable outcomes.
Make Time Your Ally
Whether or not to replace a legacy ERP is an important decision and shouldn’t be taken lightly. It’s also one that shouldn’t be rushed. While the tendency is for companies to wait until it’s absolutely necessary, it’s important to understand that a system replacement is a major project with a protracted timeline.
The project can range from a few months to over a year. It depends on a number of variables, such as:
- The size and complexity of the organization
- Whether the old or new system (or both) is cloud-based
- The level of commitment management has to the project
- The level of user cooperation/resistance
An experienced implementation partner can help develop and deliver an achievable timeline. The earlier you can identify the need to replace your system and begin the process of choosing an ERP system and implementation partner, the better. The more time you give yourself to undertake the project, the easier it will be to minimize disruptions and achieve a well-executed implementation.
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