In many legacy ERP environments we’ve come across, we see companies that have put in place a homegrown, custom ERP system that was built from scratch. Typically, our manufacturing clients face a set of specific challenges when their existing ERP business systems are developed using custom legacy code.
One of the more challenging characteristics of this environment is that with a system tightly coded to specific business processes, a company is essentially “locked in” since existing, often outdated, business rules are hard coded within the system. As business needs change, the coding is difficult to modify to reflect updated processes.
The IT Environment
This type of legacy environment is often associated with an extremely IT-driven organization, where IT handles the prioritization of business requests for system changes.
While there is often high user adoption and comfort with systems related to day-to-day functions, there is a “silo mentality” to business processing. Users tend to live in their own world and the system connects the dots behind the scenes as best as possible.
Business Risks and Red Flags
Heavy customization of legacy ERP systems result in potential business risks. Most of these issues stem from the fact that the IT support and development team is tied to the aging technology program language and architecture.
These red flags are seen in a range of other areas as well, and include:
- Significant maintenance costs and total cost of ownership.
- Complex and costly process to integrate significant business changes such as in the case of a new business or acquisitions.
- Business continuity risk with attrition of IT staff and system breakage/downtime.
- Lack of priority of system enhancements and configuration – resulting in slow adoption of business condition changes in the market.
- Lack of cross-functional business process improvement initiatives and understanding by executive leadership of how business change can be implemented with current systems.
- Difficulties when it comes time to leverage 3rd party functional specific solutions.
An equally problematic issue is evident when a company brings on new IT staff. Today’s professional wants to work with “modern” technology interfaces and development environments (such as social media and Microsoft platforms) but instead they are restricted by outdated infrastructure, languages and IT.
The bottom-line is that when an organization is ready to change and modernize current ERP systems, they have no idea where and how to start the ERP selection project.
The Dangers of Building Your Own
Looking deeper, it is surprising when our team still comes across homegrown enterprise systems, usually patched together by internal IT departments and kept alive by managers not willing to risk losing the ground they had gained over the years with the system.
Homegrown ERP might be thought of as a “good match” for an organization in that it is built to suit the specific organization — but there are many pitfalls especially on business performance.
Just a few of the more common issues include:
- Data Silos that Stem from Homegrown ERP. Homegrown systems pull data from disparate locations. They stand alone and are note integrated with other applications, so data are pulled into a silo, away from the processes that need the data.
- Duplicate Data, Manual Processes. One of the more significant time wasters is that homegrown ERP results in data duplication. Those duplicate data may be inaccurate or incomplete. Worse yet, errors from manual data input impacts data accuracy.
- No Access to Real-Time Data. Access to real-time data makes it possible for the business to make improved decisions that address issues as they happen. Homegrown ERP applications have access to historical data only. It’s clear that real-time data means the difference between success and failure. Making decisions on historical data alone could be a fatal mistake.
- Maintenance, Support Bottlenecks. An ERP vendor has teams of support personnel who are well trained and prepared to handle problems that arise. With a homegrown ERP system, an already stretched IT department must be ready to maintain and support at a moments notice. Worse yet, homegrown solutions are highly customized and often coble together several smaller systems that each performs a different function. Maintaining these systems, keeping everything updated, and preventing cascading failures if an upgrade goes wrong can be costly. When one of the IT experts retires or is reassigned, that expertise goes away. Downtime, reliability and performance are impacted.
- Difficult to Use: Many of the teams we’ve worked with note that a homegrown solution addresses some specific business processes. But the advantage stops there. The interface is cumbersome and outdated most likely.
A Place to Start
Our team of ERP consultants advises our clients to address risks and red flags by first embracing that change will be complex and multi-faceted. Executive leadership and sponsorship is key to a true business process and systems transformation.
The approach is much more than simply selecting a new ERP package. Companies need to consider the many constituencies and touch points of the overall organization through the development of a transformational business process roadmap, which is typically a multi-year plan.
A transformation roadmap will typically address the foundational elements to begin an initiative of this scale.
The process involves business process reengineering that has as its focus the future state.
As business improvement consultants, we hear all about these issues and more.
We’ve touched on just a few pitfalls of note when it comes to moving away from legacy and homegrown ERP.
For a deeper look at the ROI delivered by modern ERP functionality, download the paper “Getting The Maximum ROI from your ERP Project and Beyond.”
We’ll continue our look at legacy ERP transformation in upcoming posts.
Next time we’ll address the details of a transformation roadmap and components of ERP selection best practices.