Are Legacy Erp Systems Holding Back Business?

New and continuously evolving business models are placing increasing pressure on the already overstretched, heavily customized and cumbersome legacy ERP systems.

The business landscape has indeed changed out of all recognition in the last 3 or 4 years, born out of advancements in social business, mobile technology and cloud computing as well as ‘big data’ analytics. For nimble organizations, these technologies have created exciting opportunities to develop business models and revenue streams that were unheard of just a couple of years ago. However, as the front end (customer facing side) of an organization looks to propel it into unchartered waters, it poses the question of “Can the enterprise really expect its legacy ERP systems to keep pace?”

Business Complexity
Organizations continue to entice new customers through increasingly personalized products and services, however, as the offerings mushroom so does the complexity of the systems that are required to support them. Retailers such as Tesco and Safeway use data from loyalty programs to customize marketing offers, essentially adjusting prices for specific customers. So today’s back office systems need to be able to cope with both high transaction volumes and a broader spread of transaction types as well as dynamic pricing and promotions. The rapid onset of mobile computing is adding to the pressure because these changing pricing conditions need to be exposed in real-time to customers.

“This means back office systems are suddenly exposed to the whole world, any error or faulty data or process disconnect is visible to anyone” says Bo Lykkegaard Research Director European Enterprise Applications IDC. In the fast moving consumer world stock records have to be faultless and back end systems need to integrate seamlessly with front end systems, displaying information without the need for manual intervention.

Organizations get this wrong at their peril. Failure to fulfil orders through pricing and stock errors risks damaging an organization’s reputation. Despite this the media is littered with examples of organizations publishing incorrect pricing information online. For example, in 2012 UK catalogue retailer Argos priced the Nokia Lumia 800 smartphone for just £119.99 as opposed to the RRP £449.99. News of the bargain quickly spread through social media as well as Hotukdeals.com which reported more than 167,000 views of the post within 2 days2.

Evolving business models
It is not just the personalisation of products and services that is leaving legacy ERP systems behind. ‘Big Data’ inspired projects are also spawning new products and services. For example, remote data capture and location-specific information is being used to transform the insurance industry. Insurers are leveraging telematics (the facility to remotely monitor car usage, speed, time of day) to create imaginative car insurance products in which the insurer is able, adjust premiums according to driving habits and hence risk3.

This kind of innovation brings unwelcome new challenges for ERP systems which have to cater for high volumes or variable transaction data. For example, the need to handle the complex billing derived from telematic adjusted premiums. And as the market for telematics evolves, these demands are only going to place further pressure on the underlying systems.

Glocalization
Some companies are now responding to rapidly changing markets by offering “glocal” products and services, i.e. adaptations of a global offering for specific local tastes and conditions. For example, Unilever has adopted a glocal strategy for channel management in developing areas. It provides mobile devices to rural distributors which relay information such as stock levels and pricing back to the company. The data can then be used to improve demand forecasting, inventory management and marketing strategy, increasing store sales by up to a third4.

However, capitalizing on such windows of opportunity require an organization to react quickly. Integrating mobile technology in a timely manner across a legacy EPM (Enterprise Performance Management) and ERP suite can be complex as these legacy systems were not designed with mobile technology in mind.

If ERP legacy systems cannot cope, could more agile cloud based systems be the answer?
So a ‘capability gap’ driven by business complexity, rapidly changing business models and the rigidity of legacy ERP systems is emerging between the fast moving front end of the business and its back office ERP systems.
With ‘time to market’ ever decreasing, organizations can no longer afford ERP customizations that take months to complete. No wonder that businesses are reviewing their ERP systems (ERP systems regularly features in the top two technology priorities for CFOs1). They are turning in increasing numbers to more agile and malleable cloud systems, developed from the outset with configurability in mind.

No longer do reporting or functional changes require such extensive input from IT or external consultants. Now these can move in step with the business requirements since they can be configured and managed by end-users.

For those adopting innovative and evolving businesses models it is the speed and agility that the cloud offers which is a compelling argument to move beyond their ageing ERP investments.

We see ERP systems buckling under the strain, time and time again. Experience shows that retailers, media companies and others in fast growing consumer markets coping with quickly changing business models that generate transactions in type and volume that on-premise ERP systems simply cannot handle.  Companies will have no option but to move to the cloud.

It’s a view borne out by the exceptional growth rates of cloud-based ERP vendors. With 53% of CFOs estimating that over the next four or more years half of their enterprise transactions will be delivered through the cloud the inescapable conclusion is that when it comes to cloud-based ERP adoption, businesses are voting with their feet.

Author – Jeremy Roche, president and CEO, FinancialForce.com

References:
1 “CFOs Prioritize Business Applications: 2012 Gartner FEI Technology Study”, Gartner, 17th July 2012,
2 “Argos red-faced after website blunder advertises Nokia’s £450 Lumia 800 smartphone for just £120”, www.thisismoney.co.uk, 24th January 2012

3 “Car insurance: satellite boxes make young drivers safer”, Jill Insley, The Guardian,  5th April 2012
4 “Ten IT-enabled business trends for the decade ahead”, McKinsey Global Institute, May 2013
5 Van Decker, John, “Top 10 Findings From Gartner’s Financial Executives International CFO Technology Study”, May 16, 2012, p. 13.