The world has changed considerably in the years—or decades—since many organizations installed their enterprise resource planning (ERP) system. And, at the same time, ERP systems themselves have undergone a world of change.
Consequently, whether it’s from increasing misalignment between the ERP system and changing business requirements, or the added capabilities of new ERP systems, many organizations find themselves overdue for an ERP upgrade—or replacement.
ERP upgrades are a large investment, which means business leaders need to complete a thorough assessment of their current solution and build a list of supporting reasons for why an upgrade is necessary. If you do move forward, you’ll want a project plan and an ERP upgrade checklist, all of which is covered below.
Reasons to Upgrade Your ERP System
The many reasons that accumulate to indicate it’s time for an organization to upgrade its ERP system all have to do with either the aging of the technology or the evolution of the business. Eventually, your legacy system might no longer perform well. It might be difficult to reflect new business processes in the solution or challenging to gain the real-time visibility most companies need.
Often, legacy technology grows brittle, with complex customizations that are difficult or costly to maintain and require niche knowledge your organization no longer possesses. You might prefer to move to a newer, more advanced database that your legacy ERP system doesn’t support. Or, as suggested earlier, an older, on-premises ERP system may require you to maintain server hardware you no longer want to worry about.
Very old ERP systems might only work on an operating system that has since been sunsetted, or your ERP solution itself may no longer be supported. Either way, moving to a newer version of the software is sometimes the only way to receive support.
Other reasons a company may want to upgrade its ERP include:
- Outdated user interfaces that are hard to use or require more steps than newer systems.
- Inflexible software that can’t support new, more efficient ways your business would prefer to work.
- It’s impossible or too expensive to increase the capacity of the system to match business growth.
- Data reporting and analysis isn’t fast enough to keep up with the pace of business today.
- There’s limited or no support for mobile devices.
Why Are ERP Upgrades Important?
What makes ERP upgrades most important is the business value they can create. Today, ERP features may allow your business to capitalize on new opportunities or lead to cost savings legacy systems cannot match. For example, in recent years, ERP solutions have added real-time visibility through comprehensive dashboards, scorecards and KPIs; increasingly leveraged artificial intelligence and machine learning to automate more processes and improve decision-making; adopted more complete and better-integrated ecommerce capabilities; and provided better mobile support. In a world that is rapidly moving business processes and business relationships from the physical world into the digital realm, such capabilities are increasingly valuable.
Some new ERP systems integrate Internet of Things (IoT) devices to provide additional real-time location and status information, helping strengthen control over supply chains and catch potential disruptions early on. In an era where supply chains are increasingly complex and full of opportunities for things to go wrong, certain businesses may see sufficient value in this new capability alone to justify an ERP upgrade.
Upgrade vs. Replace?
The choice between an ERP upgrade and a full replacement is a meaningful one that comes down to how much business value what each approach would create and how much each would cost the company. There are strong cases to be made for either option depending on the business’s needs and the limitations of its existing software.
Benefits of Upgrading: Usually, an upgrade is less disruptive than a replacement. In a best-case situation, the integrations and customizations you already created in your ERP system survive, the user experience changes little, and you don’t have to partner with a new software vendor (a benefit only if you’re satisfied with the quality and service of the current ERP provider). Likewise, if your business team is happy with the current system, an upgrade should present lower change management hurdles.
Pros of Replacing: There have been major technology advancements since many businesses purchased their last ERP system, and a different provider may have innovated in specific areas that are especially valuable to your organization. Moving to a different ERP platform might allow you to take advantage of more business opportunities and process efficiencies than simply upgrading to the latest version of your current system. Additionally, in situations where a merger or acquisition forces you to operate two separate ERP systems, a full replacement could replace both older, separate systems. That could reduce complexity and increase collaboration between the two business units.
Whether you’re leaning toward an ERP upgrade or replacement, you should consider cloud deployment options. Today’s software-as-a-service (SaaS) cloud ERP solutions can lower IT cost and complexity by offloading the responsibilities of managing hardware, performance, patching and upgrades to the vendor. Cloud solutions also eliminate the need for remote users to access ERP functions through a virtual private network (VPN)—simplifying IT management in an era where more people are working from home. When moving to a cloud solution, future upgrades become largely immaterial; some cloud ERP providers offer new capabilities automatically to all customers as part of the subscription price.
Your existing software provider might encourage you to move from its on-premises system to one that runs in the cloud. That may be where the vendor is focusing its future investments, and you may also find cost and management advantages in a cloud solution. However, you should make sure you fully understand the vendor’s offering and whether it is a hosted or true cloud solution.
If you do decide to stay with an on-premises system, review its roadmap to ensure that it will meet your needs going forward.
How Do You Evaluate ERP Systems?
As with any business decision, ERP upgrade evaluations start with what you are trying to achieve: the problems you’re trying to solve and the opportunities on which you want to capitalize. For example, there may be costs you could lower or eliminate if you had a real-time view of sales trends or supply chain metrics like orders fulfilled per day.
You might have struggled with incorrect quarterly forecasts that are the result of bad assumptions built into spreadsheets that aren’t using up-to-date data. You may be able to quantify an increase in sales that would be possible if you had more advanced ecommerce capabilities that always reflected current inventory information. You might save time and resources simply by using built-in functionality to close the books faster each month.
There may be best practices in finance and operations you can implement and automate with a modern ERP system that utilizes machine learning. Finally, the advanced analytics built into some new ERP software might help you quantifiably improve the way you adapt to changing customer demand, optimize pricing to avoid leaving revenue on the table, improve marketing performance or identify potentially fraudulent orders.
Once you know what you want an ERP upgrade or replacement to accomplish, you can compare how (or whether) each option can deliver those improvements, the direct and indirect costs associated with each (including integration, customization and training), and compare the implementation plans for each.
When to Upgrade Your ERP System
In 2017, SelectHub found that most businesses use an ERP system for 5-10 years before upgrading it. Obviously, every company is different, and you won’t upgrade or replace your system until there’s a compelling business case for doing so. Some organizations integrate their ERP upgrade into broader plans for modernizing their business and leveraging automation that demand new ERP capabilities.
ERP Upgrade Checklist
Whether you’re upgrading or replacing an ERP system, careful project planning is critical. Use this checklist to help build that plan and track progress:
Establish preliminary project team. Bring together individuals from different departments with the knowledge and relevant roles to determine whether an ERP upgrade or replacement may be worth pursuing. Involve end users—warehouse employees, supply chain managers, marketing coordinators and sales professionals understand the limitations of your current system in ways others don’t.
Build business case and gain management approval. If moving forward makes sense after that initial evaluation, document the value your organization can achieve with a new solution. Then present it to executives to secure their approval, which could take some time.
Identify requirements. Define what a solution must include to deliver the value you documented, along with “nice-to-haves” that could be sacrificed, if necessary.
Identify potential solution providers. Research vendors that have a proven track record of addressing requirements similar to yours (this could include your current vendor). Companies should consider reaching out to industry partners to find out which ERP they use and ask about their experience with that provider.
Build and approve implementation plan with realistic project milestones. Pay special attention to back-end database upgrades and data integration and migration; transitioning legacy customizations (which must be retained, and how can others be replaced?); user training; go-live planning; mitigating likely points of disruption; and ongoing vendor support options. ERP implementation plan checklists often have multiple phases, so you can begin gaining value quickly while establishing a foundation for implementing more advanced capabilities later.
Execute together against the plan. Establish a candid and open relationship in which all parties can express concerns, flag emerging risks and work together toward solutions.
Perform post-mortems and plan next steps. Most organizations know they only learn from experience if they set aside time to do so. But it doesn’t always happen. With ERP projects, it’s especially important because you’ll be working with the technology and your vendor partners for many years, so there’s real value in maintaining a positive and productive relationship.
And take these steps if you plan to replace your ERP system:
Decide whether to upgrade or replace. Based on the information provided by vendors at this stage, choose a path based on a comparative analysis of cost, disruption and business value. Make sure most stakeholders are on board with the chosen path.
Shortlist top providers. Request and review detailed proposals and demonstrations. Ask questions, assess roadmaps, clarify differences between proposals that need further explanation, check references, carefully compare costs and understand how each provider commits to supporting you.
Choose a provider. Choose a partner you’ve come to trust and are convinced comes closest to meeting your requirements at the right price. That sometimes involves tradeoffs, so you may need to consider how you’ll address any problems the solution can’t handle or can’t handle yet.
Recruit full project team and hold kickoff meeting. Identify company and provider resources and ensure they can dedicate the necessary time to this project. Find tools that identify accountability for different tasks and track progress against goals (with due dates).