When CIOs and CFOs invest in their new ERP software, they expect a long and happy relationship with the new software. Like most capital investments, they typically expect the investment to last ten or more years. Ten years is a good deal of time and generally long enough to generate a positive ROI if you’ve selected and implemented the right ERP software, but why does it have to stop at 10 years? Why not 15 or 20 years? After all, it’s been a while since I met a corporate executive who was chomping at the bit to do another ERP implementation just for the fun of it.
Part of the problem relates to technology. Twenty years ago, many companies were still investing in green screen AS/400 mainframe enterprise systems. Back here in 2010, most companies we work with won’t touch a mainframe-based system with a 10 foot pole. So in many cases, technology changes so dramatically that it’s simply not feasible to remain too far behind the curve for too long.
We’re starting to see this again today with Software as a Service (SaaS), cloud-based, and hosted ERP software that are changing the way CIOs think about technology within their four walls. Even if your software isn’t outdated per se, there are enough ERP vendors developing compelling new solutions that make it tough to not at least think about replacing your current system.
In most cases, however, the software itself isn’t the problem. Most of the leading vendors in the marketplace have been around for 20 years or more, so you would think that their offerings would be keeping up to date with technology trends. For example, look at the ERP software solutions we are currently helping some of our clients replace: JD Edwards from Oracle, Baan from Infor, and Epicor. These are all very viable ERP vendors with robust and modernized ERP systems, so why are our clients looking to replace them?
It all comes back to misalignment between the business and the software itself. As the below graphic depicts, companies diverge with their ERP software over time.
Long-term Misalignment of ERP Systems
As shown in the graphic, businesses and enterprise technologies are relatively aligned after an ERP software selection and implementation. Of course, this level of initial alignment depends on how good of a job you did selecting and implementing the right software for your needs. But over time, some peculiar changes take place, causing this alignment to diverge an increasing amount over time. We find with most of our clients that it is on average a 10- to 12-year period before this misalignment emerges and reaches a boiling point.
Changes to the business. The biggest of the two drivers of this divergence are changes to the business. Ten years is an eternity in a fast-changing global economy, so what a business needs today is very likely to be different from what it needs in the future. Companies grow, acquire other companies, expand overseas, diversity their product lines, and initiate other changes to their business that cause their business requirements to evolve. Unfortunately, not all ERP software can keep up with these changes – or at least they won’t until someone designs a package that can do everything for everyone with ease.
ERP software changes. To complicate things, the software itself is also a moving target. ERP vendors generally release minor upgrades to their software multiple times a year, with multiple upgrades every few years. With these new releases come changes that may or not be aligned with the businesses needs. Granted, the whole point of these upgrades is to improve and enhance the functionality of the software, so in a perfect world these changes are meant to keep up with changes to your business. However, although software vendors are smart, they’re not yet smart enough to build a software that keeps up with all of the changes of each of their customers.
So what’s a CIO to do? The business isn’t going to stand still just because you don’t want to deal with replacing your ERP software, while your ERP vendor isn’t going to create a custom application just for you that meets all of your evolving business needs.
First, don’t stop upgrading your software. ERP vendors spend millions of dollars each year on making their software better, faster, and more robust to meet changing business needs, so the longer you wait to upgrade, the more you are exposing misalignments in the software.
Second, revisit your software on an ongoing basis. You may find that it’s time to replace it with something new, but you may also find that some simple configuration changes to the software or business process improvements will close the gap between what it’s doing now and what the business needs. It’s unlikely you will delay the need for an ERP software selection indefinitely, but it will buy you more time and a higher ROI on the original investment in the meantime.
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