Legacy ERP systems a bottleneck for innovation
A survey of Australian businesses has found that legacy ERP systems are a major bottleneck for innovation, but if the ‘cost of change’ hurdle can be overcome, the new best practice is for organisations to invest in standardisation of back-office functions and ‘appification’ of front-office.
The survey, commissioned by technology and business consulting company Oakton, measured the market’s reflections on the challenges organisations face in running their ERP services, and looked at the responders’ experience and plans in moving towards a software-as-a-service model (SaaS) for enterprise resource planning (ERP) systems.
Oakton’s Shaji Sethu, executive general manager, Oakton Applications, says most organisations have dug themselves an ERP hole with overstretched teams, complex customisations and a backlog of expensive upgrades. “Few have taken advantage of the massive decreases in cost and increase in business agility afforded by modern cloud based ERP solutions,” Sethu says.
“Our survey shows that some organisations still believe that more customisations and cosmetic additions will be their future. Others have shifted their thinking to service defined functions as a future trend. It is clearly time to start thinking outside the box. The rise of enterprise ERP SaaS as an emerging model has the potential to dramatically improve business performance and reduce significantly business cost,” says Sethu.
Australian businesses and IT executives from multiple industries participated in this survey.
There were a number of common themes evident in the survey outcomes. Clients in general confirmed that large and customised legacy implementations have become a major bottlenecks for innovation, with the most common issues cited being:
- Scarce internal resources for operations and projects,
- cost and complexity in licensing,
- upgrade costs being a major concern for the ERP roadmap, and
- return on investment questionable because of the high cost of change.
Existing ERP implementations are still strongly ‘in-house’ with internal customisation often the first choice:
- 80% of organisations maintain their own ERP,
- 52% of organisations say the right ‘business fit’ is the most important driver in selecting an ERP solution,
- 80% of organisations do understand licensing models when purchasing their ERP software,
- 47% of organisations heavily customise their ERP, and
- Customisation is strongly driven by ‘improving business processes’ or ‘unique industry requirements’ for more than 80% of organisations.
ERP in the cloud is still a new concept with:
- 69% of organisations not currently having their ERP delivered in a Cloud or SaaS
- 55% of organisations are looking to shift IT from a technology-defined to a service-
Of those looking to shift to service-defined IT, 30% say ‘complexity’ is the main impediment to doing so:
- 23% of organisations will look at cloud-based application deployment (SaaS) when they upgrade or replace their current ERP, and
- only 10% of organisations will not be considering cloud-based application deployment, cloud-based infrastructure deployment, hosting or complete outsourcing when they next upgrade or replace their current ERP.
While running costs were a factor, it was not a strong signal. An indicator that there was poor separation of commodity ERP services that must be driven by cost and the business customisations that are driven by value with:
- 30% of organisations say total cost of ownership (TCO) is the most important driver in selecting an ERP solution,
- 35% of organisations cite reducing cost, complexity and capital investment as key drivers to upgrade or replace their ERP.
Respondents recognised the need for innovation and responsiveness with an equal split between building more customisations and adopting new digital and mobile interfaces as the likely response:
- 34% of organisations believe greater customisation is the right way to get more value from their ERP solution, and
- 30% of organisations would extend ERP to mobile and tablet devices when considering how to make their current ERP more agile.
“Organisations that have invested heavily in standardisation of their back-office functions and ‘appification’ of front office are realising significant improvement in their bottom line. Recent profit announcements from leading Australian organisations is evidence of the same. Alternative is to lose your competitive advantage to faster and more nimble startup and go out of business,” says Sethu.