Grappling with ERP: Are rising costs stifling innovation?
- 26 April, 2019 11:49
Technology budgets are tight and CIOs are increasingly being asked to innovate for the lowest possible cost. For many tech chiefs, this means deciding how much time and money needs to be allocated to updating and customising long-standing core enterprise resource planning (ERP) systems versus creating and rolling out new, innovative technology initiatives.
The problem for many CIOs is they feel locked in by the big ERP suppliers. They feel the money allocated to constantly maintaining these systems could be better spent on digital transformation activities that may just provide a competitive advantage.
Tech execs gathered at Lenovo-sponsored roundtable events in Brisbane, Sydney and Melbourne recently to discuss their ERP landscapes and how they are striking a balance between the time it takes to maintain these systems and the need to innovate with technology across the business.
Calvary Christian College director of business development and ICT, Kym Ayling, says the organisation’s ERP landscape has been static for the more than 15 years and although there are frequent complaints about it, there is a greater fear about transitioning to a new platform.
“This is okay until we reach a tipping point probably manufactured by leaders who don’t understand how difficult and costly the transition will be,” Ayling says.
City Beach chief information officer, Rhian Greenway, says the clothing retailer is ‘mid-transformation’ with a pending go live that will see a modern ERP linked with Power BI at its core to deliver analytics and analysis reporting.
“If we look at ‘right now’, we are running a very old bespoke inventory system with limited reporting and reliance on transactional reporting with little to no analysis.”
Another roundtable attendee says his business is not using an ERP suite and is at the start of a systems design and implementation journey.
“We have Infoware in place to handle our payroll and finance requirements but spreadsheets and emails are used to run the bulk of our business processes. A key challenge with the existing product is its lack of APIs and in turn, its integration capabilities. While it does offer electronic data interchange, this does not really allow integration with modern tools to create a holistic approach to data and analytics,” he says.
Putting the brakes on innovation
Attendees agreed that transformation and innovation activities are being hampered by the requirement to spend time and money updating and customising core applications.
“Innovation is being somewhat stifled but often we struggle to understand the true cost of change in terms of time and resources and thus we haven’t got a clear plan – we don’t understand the risks and don’t gain the outcomes desired,” according to Calvary Christian College’s Ayling.
Another senior tech executive at a food service organisation said more and more, his company is automating or pushing out routine work to vendors.
“Our view is that internal resources are better placed to serve the business’ needs. Nobody knows our business better than us although consultants like to say otherwise. Managing governance, risk management and compliance is driven by a desire to work smarter – removing process waste and constant evaluation of the way work is done.
“Traditional job scheduling, robotic process automation and automated incident response are examples of where we remove human glue,” he says.
Lenovo solutions alliance manager, Lenovo, Andrew Silvers, says managing infrastructure costs including the equipment and the people to maintain it can be reduced significantly.
“Many customers are moving to flexible software-defined architectures built on servers with inbuilt storage called hyperconverged solutions. Management of virtualisation, servers and storage is integrated so they are much simpler to manage and can expand and contract very easily to meet an organisation’s needs. That leaves more resources available to focus on the applications that serve the business needs,” he says.
A senior tech exec at a large energy company says maintaining update release cycles is a challenging and costly exercise.
“We have moved away from customising core apps as this typically makes ongoing change management a bigger and more risky task.
“Where some level of customisation is required due to a change in obligations, we look at ways of doing it by other means. One example is a Java-based app that we call ‘market system integration’ that deals with the complex and often changing B2B rules and avoids the need to perform major surgery on more expensive environments.”
Feeling locked in
Companies often feel they are either locked into their ERP contracts or that suppliers are unnaturally forcing them to move applications and services to the cloud.
There’s a clear trend for vendors to market the benefits of the cloud but where organisations deploy their applications or how they pay for them doesn’t change, Lenovo’s Silvers says.
“Organisations need to carefully define their requirements,” he says. “Other criteria including performance, security, integration, frequency of updating software, networking costs and data volume are the next level of reasons for choosing deployment options such as public, private or hybrid cloud,” he says.
Silvers adds he has seen many organisations rely too heavily on consultants from outside their organisations.
“Consultants can provide a skills boost buy they need to be carefully managed,” he says.
Another attendee also feels that vendors are trying to force companies to the cloud.
“We’ve been able to counter this by being smarter with our licensing but it’s a constant challenge. One particular vendor is constantly moving the goalposts and perhaps their cloud solutions are not as mature as their competitors so it feels like they are ‘sweating’ the incumbent base. We try to counter that by forcing them to compete against other leaner operators. Our message is, ‘come to the party or you will end up with zero.’ Getting the best value is basically playing hard,” the attendee says.
AB Paterson College director ICT services, Afzal Shariff, claims that, in certain instances, some software vendors are forcing the move to the cloud under the pretext of security. He believes this is a scare tactic used by vendors and aimed at senior managers and CEOs.
The Entertainment and Education Group chief information officer, John Boyd, says having an ‘eyes wide open’ approach to the business benefit of moving to the cloud and seriously considering alternative assists in ensuring organisations are getting value and are on the right path to success.
Another attendee says his organisation has a cloud-only approach unless it can obtain a service via SaaS or PaaS.
“For us, cloud is the only real option to avoid the need to find money to install infrastructure or rent rack space and then inevitably bring on headcount to manage that equipment,” he says.
“I can see why vendors are heading down that path and for the SaaS and PaaS offerings I can see the value proposition but with IaaS it is a more complex question as to whether the return on investment [ROI] might not be there when rapid scaling up and down is not a factor.”
Turning to smaller, more nimble vendors
Many organisations are now turning to more nimble SaaS providers that can often provide point solutions at a lower cost than the larger ERP providers.
Organisations need to define what are their specific critical application requirements for their ERP environments, and what can be done with best-of-breed solutions whether they are SaaS or other software suites, according to Lenovo’s Silvers.
There is no application provider or suite of products from one vendor that is perfect at everything. The risk is how complex and costly the integration can become when you mix solutions,” he says.
The Entertainment and Education Group’s Boyd adds that SaaS providers such as Microsoft are giving the organisation more nimble operating models that deliver a superior customer experience and support innovation.
“Scalable, integrated and modular systems allow a rapid modernisation of the legacy stack and allows us to capitalise on new technology,” he says.
One attendee says he prefers to work with smaller startups and newcomers to the market where possible.
“Once I have the primary business needs of finance, CRM and operations implemented and operational, then I am planning to implement other products to meet the ‘non-core needs’ of the organisation.
“Working with an organisation at the same size, scale and worth fits us well. While a smaller organisation may have the smaller resource pool to draw upon to achieve what we are seeking, it’s a balanced risk question to determine if we want to be a tiny fish in one vendor’s ocean compared to healthy fish in another vendor’s small pond.
“The value proposition for us comes to the engagement we get with smaller vendors. I have been asked to contribute to product direction and capabilities with some of our niche vendors whereas the odds of the big vendors coming to me to ask how they can modify their products to meet my specific needs is pretty slim.
“There’s also the integration layer to account for. Going back 10 to 15 years, you would deploy an ERP suite and get a lot of integration issues. Nowadays, with APIs and API middleware, the proposition of multiple tools is a safer, and in some cases, more palatable option.”
Calvary Christian College’s Ayling says his organisation is also turning to smaller SaaS vendors because they often react faster than bigger providers.
“Obviously, these products fill the niche but don’t always help solve the other issues of data integration and application creep which is almost the same as company-endorsed ‘shadow IT’,” he says.
Lenovo’s Silvers has a final piece of advice for businesses considering replacing their core ERP applications.
“Be clear on your requirements, ensure you have enough skilled staff and enhance them with external consultants. Do a proof of concept and don’t be swayed by the latest trends in the industry. Your ERP solution and the vendors you choose will be with your organisation for five to 20 years.”