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November 13, 2018|
It’s becoming increasingly common for IT leaders to find themselves caught between daily management tasks and driving growth and innovation within their companies – especially when it comes to ERP systems.
A significant investment for any company, ERP systems are a major component of business efficiency and can help create a competitive advantage for companies with advanced capabilities. Those abilities typically come with current ERP versions that are tailored to individual business needs, especially those that take advantage of innovative methodologies like continuous delivery.
But getting to a modern ERP system is a challenge for many businesses. Legacy systems or older versions are often highly customized and require a large investment to upgrade. In this article we’ll discuss the major drivers and considerations companies need to account for when evaluating their ERP upgrade options and how they’ll impact business goals.
An ERP upgrade can take an enormous amount of time and resources. The full process often spans eight to nine months and can cost several million dollars, depending on how many end users the system has.¹
Despite the cost, ERP upgrades are considered an investment, with most companies taking on a “technology debt” when they choose not to upgrade. Eventually, companies with a high technology debt are forced to upgrade systems or risk losing support from the vendor. In most cases, however, companies upgrade their ERP systems well before they lose support. The majority of ERP upgrades are driven by one or more of these key elements:
Over half of ERP upgrades are for business improvements.¹ Improvements can center around implementing new functionality, expanding system reach and capabilities, or consolidating multiple ERP instances to improve efficiency.
Businesses must align with a variety of compliance requirements, including security needs and regulatory compliance. As compliance certifications are issued based on current software versions, companies that are sensitive to compliance issues often choose to upgrade to the latest ERP version to stay current and reduce their regulatory burdens.
Similar to business goals, mergers and acquisitions often leave companies with multiple ERP instances with distinct data and processes that need to be consolidated. Companies at this stage upgrade to align each of their businesses with a central mission and system.
Fifteen percent of ERP upgrades are due to legacy systems that are no longer supported by vendors.¹ In these cases, companies can no longer defer their technology debt and are forced to upgrade to “keep the lights on”.
While every ERP upgrade has nuances based on business needs and resources, there are two main types of ERP upgrades that companies implement: technical upgrades and full upgrades.
The least invasive option in terms of business activities, technical upgrades focus on keeping systems current without introducing new functionality. Technical upgrades take significantly less time and resources to implement, making them more practical for companies that don’t immediately need new functionality to move their businesses forward.
Companies who aren’t driving toward business goals are more likely to choose technical upgrades that meet their requirements but don’t require a high resource expenditure.
A full ERP upgrade incorporates technical requirements, new functionality, and migrating existing customizations from one ERP version to the next. It’s common for a full upgrade to take over a year to complete, including prep time, system migration, and staff training. To alleviate pressure on internal resources, many companies use managed services providers and strategic ERP partners to help complete full upgrades.
Full upgrades are ideal for companies driving toward business goals, Innovation IT models, or that want to improve their competitive advantage.
Perhaps the most involved option for businesses, rip and replace upgrades completely remove old systems and implement a new one. While most businesses view this more as implementing a new system, it can be an option for those who want to stay with the same vendor but start fresh. Cloud and on-premise rip and replace options are usually available.
The extent of your upgrade will vary based on your goals, existing system customizations, and the type of upgrade you’re doing. But regardless of upgrade scope, every company needs to plan resources according to needs.
Upgrades can cost up to half of the original software license fees plus 20 percent of implementation costs.¹ That can equate several million dollars, with expenses rising based on the number of end users. Companies need to plan upgrades based on when they make the most sense for IT budgets, balancing the need for a current system with other priorities.
ERP upgrades require dedicated staff. Some estimates recommend dedicating at least one full-time staff member for every 35 end users, which could significantly increase your IT team during your upgrade. If your current staff still needs time to dedicate to other initiatives, you’ll need to support your team with outside resources.
For a successful upgrade, you need experts in your current system as well as the new system. These experts will map out current processes, customizations, and technology gaps that need to be fixed, then determine how those translate to the upgrade. A lack of in-house expertise could signal a longer or more expensive upgrade, as well as the need to supplement your team.
Full ERP upgrades take between months to complete, depending on business needs and the experience of your team. Planning out your timeline should include in-house staff resources and how much time they’ll have to dedicate to upgrades versus regular job tasks. If staff can only devote part of their time to the upgrade, your timeline will lengthen significantly.
After evaluating their current status as well as the goals of their ERP upgrade, many organizations find they don’t have all the resources they need in house. They may:
These organizations support their upgrade processes with third-party managed services providers. ERP managed services are often system specific, such as working only with Oracle ERP products like JD Edwards, and may also further specialize in ERP instances for certain industries.
As such, managed services providers bring both system expertise and industry experience that can supplement internal teams. Managed services staff can provide assistance remotely, or be an on-site presence to help with tasks during upgrades.
After the upgrade is finished, managed services providers often continue with innovation and strategy services that train employees on the new system, advise on business and process improvements, and provide guidance on which future upgrades make the most sense for the business.
Every business should evaluate ERP upgrades as they become available, weighing the benefits of upgrading versus the cost and technology debt that comes from skipping major upgrades. Once an upgrade is decided upon, IT and business leaders can create a strategy that maximizes efficiency and resources to get the best business results.