Disruption or no disruption, ERP systems continue to be the bedrock for innovative businesses, writes Mike Kiersey, Principal Technologist, Boomi. From supply chain management through to HR processes, successful ERP modernisation or simply implementation is often the difference between a company succeeding or falling behind more digitally advanced competitors.
This is not to mean that ERP implementation is an easy process, with dozens of high-profile failures arguing otherwise.
Lidl, National Grid, Revlon are amongst the many who have had infamous ERP modernisation struggles. Modernising ERP systems comes with significant risk, and, unless companies put every effort into ensuring its success, they can be left with disparate, siloed systems that leave them at a disadvantage.
Business change is an inevitable part of the corporate lifecycle, but it can also be daunting, and there are certain barriers -whether it is a lack of internal unity or a hesitancy to innovate- which hold back ERP implementation.
Technical Debt, the Bane of ERP Systems
Technical debt takes on different forms for different software companies, but, in its simplest form, it is the idea that businesses and developers in particular implement solutions designed for the here and now to ensure quick project delivery, emphasising ease of use. Moving forwards however, these solutions are inadequate as a long-term approach, and leave enterprises trapped with technical debt that holds the entire environment back from innovation.
Whilst business priorities might have changed for some during the current crisis, the complexity inherent in ERP systems is not going away anytime soon. This is largely due to the technical debt companies have amassed over the years, as they add technologies to their stack, and they in turn become outdated and need new technologies to fill the gaps.
There is no quick-fix solution for this, with many enterprises ‘trapped’ in a system whereby their budget needs to prioritize functionality over modernisation. Technical debt caused by short-term decision making is holding back enterprises in the long run.
The ERP Innovator’s Dilemma report found that businesses are now spending 35% of their IT budgets on keeping the lights on. Whilst this figure is around half what it was twenty years ago, thousands of enterprises are still hindered by legacy systems. Some companies have taken pragmatic, proactive decisions on innovation and migration and are now reaping the benefits, but many are unable to, encumbered with legacy systems which are a huge challenge to replace because of the backlog of technical debt they have created.
Business agility has never been more important, but with decade-old systems still core to many enterprises’ architecture, agility for some is a distant dream. However, the current circumstances are giving IT teams the time to analyse their systems and make proactive decisions about steps they can take to modernise them.
Internal or External Implementation?
It is easy to say that ERP systems need to be modernised, but ‘lifting and shifting’ entails its own complications. As such, the housing of ERP systems, whether these are implemented and maintained in-house or through a systems integrator, can cause a significant headache to IT teams.
The majority of organisations, 65%, are using large systems integrators to implement their ERP systems. These same organisations are however anticipating a shift in 12 months’ time, with the largest proportion, 36%, intending to manage the implementation in-house but have it maintained externally. Just 23% will be moving forward with a fully outsourced system.
By modernising ERP, IT teams can focus explicitly on the initial implementation process before enabling management to third parties. This frees up internal IT teams to focus more on innovation.
Unfortunately, there is no consensus on the best steps to take on this. In-house maintenance is time-consuming for IT teams whilst a fully outsourced solution has its own limitations, including a lack of internal say into the direction and performance of ERP systems. A combination of the two is often the best direction businesses can take, but this has its own complexities.
Cloud or On-Prem?
The discussion around whether ERP systems function better on-prem or in the cloud has been ongoing for decades, a discussion that has intensified following SAP’s S/4HANA migration. With modernisation more imperative now than ever, the debate looks set to conclude with businesses increasingly turning to the cloud.
Boomi’s survey found that many organisations have already migrated applications to the cloud, led by Supply Chain Management applications, at 42%, and Business Intelligence applications, at 40%. Interestingly, whilst 18% of ERP systems are currently on-prem, businesses estimate that this will plummet to 0% in 12 months, with 57% of ERP deployments to be 100% cloud, up from the current 11%.
ERP implementations will continue to become more cloud-based but the reality is that, for many, ERP will continue to co-exist across both on-prem and cloud, which raises its own concerns. As companies gradually lift and shift ERP systems to the cloud, these concerns need to be prioritised and managed to reduce disruption on operations.
A crucial one is compliance – with on-premise and cloud ERP systems subject to different regulatory requirements, CISOs should create an overarching security strategy which takes these into account and prevents lagging behind the relevant regulation. In a similar vein the management and governance of sensitive data is still a top concern with CIOs e.g. access controls, encryption of data at rest and in flight, coupled with the need to update processes to adapt to the cloud as it may not be a like for like existence. It is key for CISOs to perform robust diligence on all security aspects on the platform to ensure compliance and that a service provider can provide transparency and auditability.
Just as critical to a landscape which includes cloud ERP as well as on-premise ERP is the integration of both these systems. The availability of data ingestion technologies able to absorb data from any source is a key concern for 51% of EMEA businesses, according to the ERP Innovator’s Dilemma report, while 39% also cite the lack of integration-related skills, and of professionals trained to understand the business processes.
The solutions available to businesses all too often prove unable to deal with today’s complex hybrid IT landscapes, say 38%, which makes it all the harder to support an ERP landscape composed of partly cloud-based and partly on-premise applications. Organisations need to invest in skills, either as knowledge handover from partners, staff augmentation or traditional hard skills training, architectures will change and some technologies will have been removed and others added to as part of the solution. Engagement and cloud vendor management is critical for project success, understanding how to escalate issues, measurement of SLAs, contractual performance agreements all need to be clearly understood by IT and supporting teams in the new operating model.
Ultimately, modernisation does come across some common hurdles for all companies. Migration exhaustion holds many back from upgrading their ERP systems, while cultural resistance once again proves to be a major obstacle to undertaking such a momentous step, especially when all too many organisations are laden with a technical debt which can make the prospect all the more daunting.
A solution to the challenge of hybrid ERP is to ensure that businesses have a systems integrator that enables dual functionality and makes the job of maintaining performance as easy as possible for IT teams. Typically, it takes about 12 months to move an enterprise customer to ERP solution and data to the cloud, many of those who have embarked on a journey have experienced challenges with the migration of data.
CIOs need to have a business resiliency plan, and plan for the worse, these are complex, challenging projects that are the “heart” of the business and they cannot afford to have a business “cardiac arrest” due to data issues. CIOs need an iterative process to develop and test data migrations at speed to mitigate failures but also to show confidence and assurance to the business.
The ERP Landscape Going Forwards
The challenges are there for all to see, but they are not insurmountable. Companies that are willing to take risks and are willing to reassess their IT landscape will be able to forge an architecture that is durable yet flexible, an architecture designed for tomorrow’s speed of business.