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Article
ERP's Dilemma

Tens of thousands of companies are still sitting on old ERP platforms. What will it take for them to upgrade?


Full Article Below -
Untitled Document

The major direction of most of the big ERP companies these days is modernizing and upgrading their ERP portfolio. Epicor, Aptean, Infor, QAD, UNIT4, SAP, and others all have major platform upgrades to which they are trying to migrate their customers. This presents a huge dilemma for both the customer and the ERP providers.

Support costs for the end-user company can be quite high. And companies like SAP have actually increased their support fees over the years. But the real challenge in supporting the old platforms is the lack of knowledgeable personnel who can continue to enhance those products. Coupled with the fact that all new sales are based on the latest and greatest technologies on the new platforms, this creates a huge dilemma for the ERP companies. Even though they make a lot from service and support revenues, in reality these older platforms are very expensive to maintain. And like end-users, the ERP providers find a lot more of their developer budgets go to support versus innovation.

However, going through a significant software upgrade is a highly disruptive activity, one that companies generally avoid making until they are compelled to move.1 Migration is not easy. Over the years, we all have sat through software presentations describing how great the new world order will be. If we subtract a little hype, this tends to be true. Access to all the new cool stuff comes through the new platforms—users do not want to buy old software. There are motivators, of course, for enticing customers to move to new platforms and software. But there are also workarounds. Therefore, many companies choose those workarounds rather than dealing with the huge disruption of making any major ERP change.2

I keep looking for the big technology strategy that will help end-users’ companies move in a relatively painless way. Multi-tenant cloud providers such as NetSuite, BizSlate, and Plex Systems, for example, don't have these kinds of problems. So new buyers of ERP are becoming very attracted to this type of approach because they know what will be facing them in the future. We are seeing big ERP companies jump on the bandwagon to provide SaaS solutions as well as to take advantage of the general cloud trends. Many of the ERP providers today have bifurcated strategies (Epicor and QAD, for example), selling both license and SaaS/multi-tenant solutions.

Is There an App for That?

In the long run, end-user companies will need to upgrade. All their new hires think substantially differently about technology than the old-timers do. When they walk the manufacturing floor, they think of connecting to equipment or business processes through their mobile devices. They don't think about being tethered to equipment or offices. And this mentality is reflected across all aspects of technology engagement—the UI, the analytics, and the solution development tools.

In addition, and the major point, is that the cost to maintain some of the old ways—both the technology and older processes—can be more expensive than a cleaner, leaner new set of processes and technologies. Clunky problems in the older approaches to ERP have led companies to poor performance: serial-type processing; a lack of global visibility to their own operations, what to say of trading partners; and lack of ability to drill down into the details that are impacting day-to-day performance, such as customer service levels, etc. The latter capabilities, especially, often are lacking in the old software.

Plus, software companies will find it harder and harder to support their customers over time, and will continue to raise either the service costs or the time it takes to solve problems. Integrating the old technology to domain-leading, third-party software is also more problematic in the old platforms.

UI is Not Enough

Many process challenges are symptomatic of ancient architecture, poor database design, and coding techniques which make the systems brittle and hard to enhance. (In fairness to Epicor, Aptean and Infor, these problems predated the current management and owners.) Many of these issues are being addressed by new architecture and UI in software that is either on the drawing board, in development, or in the process of being released. But though I am a champion of the new UI, it’s not enough.

Using service-oriented architecture (SOA) and new UI techniques does help a great deal. It enables a migration approach that allows users to move little by little, module by module, instead of going through the ‘big bang.’ I certainly don't advocate one approach over the other, but I do feel that migration approaches have been very limited.3

The Dilemma

Cost of ownership versus cost of upgrade. Time-consuming and clumsy workarounds versus the disruption of upgrading. The risk that the new promised land will never quite fulfill your expectations versus sticking with what you know—no devil like the one you know. These are genuine issues for end-users.

On the software companies’ side, should they just continue to collect cushy support fees or push ahead, cutting off support to old revisions to ‘encourage’ users to move? There are risks that while the customer is evaluating new software, they will also evaluate a new provider. (It happens a lot). So providers need to think diligently about these upgrade paths. I listened to many, many heads of consulting from the tech companies. They mean well, but they get paid by billable hours. So although their services are oriented toward supporting the upgrade, they may not offer you all the incentives (semi-automated upgrade, fast-track methodologies, or special pricing) to make the upgrade process faster. Their greater goal is keeping the customer in the family, any way they can. However, the more expenses beyond the software purchase that an end-user incurs, the bigger are the obstacles to change. More obstacles to upgrade can actually encourage customers to look outside for replacements. So automated approaches to upgrading, data cleansing tools, BPM tools, etc., should be pursued to ease and speed up transformation. No doubt you, the end-user, will need help; after all, this stuff is pretty complex. But it needs to be in proportion to the need for the ERP company to protect its customer base.

A more critical point for the market is that companies don’t seek out and engage their older customers in discussions—even if they no longer pay annual support fees. This is sad and bad—and all too common. Eventually, those customers will buy new software and you might not even get a crack at pitching your new vision unless you have had some relationship with them.

Users, as well, are not staying engaged. Participating in user societies, attending various events, and maintaining an ongoing dialogue with the ERP companies is crucial. Many end-users fear these conversations, since they feel they will be compelled to dip deeply into their wallets. OK, deal with it—there might be a sales pitch in there. But how can you not talk to the enterprise software providers and the community around them?

On the upside, there is a lot more alignment on the need to move, more often than we realize. Figure 1 is what we hear are the drivers of change. Harmony does exist, and it presents the path forward to guide the discussion.

Figure 1: Drivers of Software Change

Guide to the Top

I recently read a blog by a mountain guide who also appears to be an agile developer in his day job. Some of his observations about guiding people up the mountain certainly apply to the software industry. He recommends that mountaineers come prepared with all the tools, but he also points out that as a guide you should assume that almost everyone else will come unprepared and you should have more than enough tools to not only take care of your own team but also people you may meet along the way. “I have encountered it over and over again—some people do not pack…crucial tools. I ended up bringing spare ones on each trip.”

Interestingly, he also talks about being a leader in introducing change in the team you are guiding. The one with the most expertise leads. “Your responsibility as a leader is to start, show an example, and ensure that people have everything they need to accomplish the job.”

Does this mean that it is the role of the software provider to challenge their customers? Or are they the followers? Over the decades, it has become a non-winnable debate; for example, whether the Internet supported globalization or caused it. Did the Internet allow for outsourcing or did outsourcing just take advantage of a tool? It’s the job of the technology providers to push the technology forward. It’s not a fault—it’s an attribute. In fact, when some of these firms sat on their hands for a while—technically speaking—that is when their market share slid.4

So, should the software firm provide incentives to encourage you to change? Absolutely. But who leads? Who follows? Ultimately it depends on you—the user. Is your company a leader in your industry, willing to seize opportunities in your market and then inspire your support team (your software company, trading partners, media, and others) to follow you? Or do you wait for others to point the way? As a customer, shouldn’t you be doing everything you can to encourage your tech provider to build good tools to support migration and transformation? One day you will need them.

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1. Read Insights on Epicor for CEO Qureshi’s statement on migration. Also, Aptean announced “Unlimited” which provides lifetime support for current revs of the software customers have. UNIT4’s major message is for ‘companies living in change,’ messaging the notion that change is inevitable, so the software architecture should support change. -- Return to article text above

2. The old software models of Nolan implied a seven-year portfolio refresh, but ERP history has challenged that number in a BIG way.  http://en.wikipedia.org/wiki/Capability_Maturity_Model -- Return to article text above

3. I remember the old PeopleSoft had a path for upgrading which included migration tool sets, consultants whose only job was to facilitate migration, as well as highly attractive software and billing rates to get users to move. I'm not seeing too much of that in the market these days. -- Return to article text above

4. One blogger was very uncomplimentary to older ERP. He called it ‘the bone yard.’  


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