Craig Sullivan, vice president and general manager of International Products for NetSuite, outlines eight ways in which outdated ERP systems can damage your business.
Over the past decade, technology has transformed the broader world of business and consumer applications. Workers interact through mobile devices and social media, with applications increasingly connected over the web. But many ERP deployments remain static in spite of these changes.
According to research by Forrester, “approximately half of ERP customers are currently on releases that are two versions behind the current release, which may be four years old or more.” It’s hard to believe that an outdated, five-year-old ERP system can be relevant to a business in the modern world in which last year’s smartphone is passé and a business like Groupon can grow from a start-up to $700 million-plus in revenue in just a few years.
Today’s speed of change places stresses on business process. Worker expectations have changed on how they want to engage with business systems, and customers have changed how they want to engage with businesses. Running an ERP system that is only upgraded every four or five years (at best) is simply not sufficient to take advantage of change and maintain competitiveness with your peers, especially in an uncertain and volatile market. Business and technology are now moving so quickly that even if you do invest six months and £500k in an ERP upgrade, the end result will likely be out of date by the time it’s completed. Worse still, old ERP systems are fundamentally incompatible with the way companies need to be structured for success today.
Here are eight ways that aging ERP systems are holding back businesses and what can be done to overcome these issues:
1. Old ERP systems drain the innovation from your IT budget
The key to knowing how aligned your ERP systems are with your business imperatives is measuring how much of the IT budget is devoted to innovation rather than maintenance. Analysts from Forrester to Gartner measure this closely, and have found maintenance spend ranges from 50 per cent to more than 90 per cent of a typical IT budget.
Simply changing the equation and reallocating the IT budget from maintenance to innovation is almost impossible with old, on-premise ERP because every costly upgrade, patch and fix equals money and time that isn’t spent on tailoring ERP to meet the needs of the business.
2. Business regulations demand fluidity; brittle and outdated ERP fails to keep pace
New regulatory changes are increasingly common today, whether for data protection, financial regulation or information security. Out-of-date ERP systems struggle to cope with these changes, typically requiring time-consuming patches or additional manual processes.
3. Ageing ERP is a drag on business agility
The web enables business to go global instantly—reaching many millions of customers in a year or two, whereas it used to take a decade or more to make that type of progress.
Groupon stands as an example of the kind of disruption that the internet enables. Labelled the ‘fastest-growing company in history’, it grew to revenues of $700 million-plus in 2010 from $30 million in 2009—a stunning growth rate of 2,241 per cent. This would have been unthinkable just five years ago. Furthermore, with the dramatic growth in emerging markets, businesses are looking to quickly tap opportunities in the space of months, not years— before their competitors get there. Outdated ERP, unable to react to and take advantage of change, restricts the agility that is crucial in our increasingly online world.
4. The mobile workforce can’t perform efficiently with outdated ERP
According to Forrester, up to 50 per cent of businesses will increase the number of mobile applications available to employees, customers or partners as part of their upcoming IT priorities. Our computing time is spread across any number of devices and platforms—an iPhone or Android device in the morning, a PC and tablet in the daytime and maybe a MacBook in the evening. We’ve transitioned to what Steve Jobs called the “post-PC era,” with powerful mobile devices offering anywhere, anytime web access.
Using outdated ERP means either completely giving up on accessing your information from anywhere outside of your office or enduring sluggish client-server experiences over virtual private networks (VPNs). It also means having no visibility into business operations when on the road, or having to drive into the office to approve a sales order. The result is that employees are simply less productive than they could be, and important business decisions cannot be made as efficiently.
5. Centralised ERP hampers the increasingly decentralised business
Businesses as a whole are becoming more distributed. A June 2011 survey by McKinsey illustrates the trend: more than 50 per cent of companies anticipate a rise in part-time and temporary workers, 25 per cent a rise in telecommuting and more than 20 per cent expect growth in offshoring and outsourcing.
Old ERP forces you into an expensive centralised structure, unless you can afford to dispatch IT teams to every corner of the globe. It means maintaining desktops at multiple locations, upgrading clients and dealing with information fragmentation across local clients.
6. Old ERP doesn’t satisfy the appetite for real-time information
Old ERP systems generally make reporting an onerous and error-prone exercise—leaving organisations to manually generate reports and create budget or forecast spreadsheets.
To compete, businesses need modern ERP designed for today’s needs. This includes combining real-time business intelligence and analytics to enable workers across the organisation to collaborate more easily and have visibility on key performance indicators, no matter where their location and without days of delay.
7. Stone Age ERP walls your business off from suppliers, channels and customers
Customers are no longer content to wait on the phone to check an order; they want to browse your website to get their order status right now. Your suppliers stand ready to drop-ship your orders in real-time rather than forcing you to tie up capital in inventory. Your website is increasingly your principal storefront, and customers judge your business by the level of service it provides. Your operations have to be interconnected with customers, suppliers and partners, enabling real-time information exchange on demand.
As the web increasingly becomes the medium for information exchange, your on-premise ERP is increasingly a disconnected silo, out of sync with the rest of the world.
8. Old ERP is a barrier between your employees and self-service
Stone Age ERP was designed when businesses were top-heavy in general administration—when it was standard practice to have someone assigned to rekeying purchase orders or time and expense entries. Today, any unnecessary bureaucracy just wastes time that could be better spent elsewhere.
These eight factors should provide some compelling evidence as to how persevering with outdated ERP may be damaging your business. So what’s the solution? Modern demands for real-time information and boundless flexibility point to one answer: the cloud.
The first benefits of cloud-based ERP are the automated upgrades managed and delivered by the vendor at any time, helping to reduce spend on maintenance, freeing up resource for value-added activities including creating new cross-functional workflows and reporting processes, adding sales channels, entering new markets and improving collaboration between internal and external systems. It aligns continuously with your operating environment so you’re always up to date and adhering to the latest accounting rules, tax regulations and compliance standards. The result is less risk, reduced headcount and more time spent on strategic rather than operational tasks.
Cloud applications also provide the engine to drive growth, enabling businesses to lay down an applications footprint for each country and subsidiary in weeks—not months or years. Cloud ERP spares businesses from having to worry about scaling up expensive IT resources and large capital expenditures on IT infrastructure. The result is speed that creates true competitive advantage.
In addition, web-based ERP applications are optimised for the distributed ‘elastic’ business, meaning the workforce can access applications, monitor and manage the business from anywhere on any device and scale up and down when needed. They can operate on a true ‘follow-the-sun’ model and not be limited by the constraints of centralised ERP or be dependent on local IT resources. A similar principle extends to connectivity with other platforms and web applications within your enterprise or beyond, to partners or suppliers.
Lastly, cloud ERP is designed for lean businesses and uses the power of the web to drive employee self-service, just as the web has securely transformed online banking and customer self-service systems. Web-based systems can allow employees to submit reports or purchase orders directly into the ERP from anywhere, requiring just online approval. As banks have known for years, empowering customers with self-service through the web increases profitability and reduces waste that goes straight to the bottom line.
Cloud ERP frees businesses from the brittle, inflexible and change-resistant ERP of the past. With the cloud, businesses can run on ERP that is ‘version-less’. It means that businesses get the latest innovations automatically, from new features to support for the latest regulations. No more waiting, no more costly upgrades, no more upgrade risk. No more outdated ERP.
Craig Sullivan is vice president and general manager of International Products for NetSuite. Craig is a Fellow of the Institute of Chartered Certified Accountants (FCCA) and has experience managing the financial operations and internal systems deployment for high-tech companies in the UK and throughout Europe. www.netsuite.com