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How digital operations drive ERP modernisation

When it comes to modernising enterprise resource planning, IT decision-makers have a multitude of options. We look at what to consider when planning a modernisation project

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Digital transformation gets a lot of hype, especially from the large consulting firms with their vested interest in selling a lucrative (for them) transformation project.

There are, however, many good reasons to move out of your current business applications and buy – or rent, if you choose software as a service (SaaS) – a new forever home. Forrester coined the term “digital operations platform” to describe the new breed of core business applications.

Digital operations platforms handle many enterprise resource planning (ERP) workloads, but with very different architectures that make them more flexible, open and easier to use. IT leaders who are considering replacing legacy ERP suites with modern digital operations platforms are doing so because they want to improve.

The first driver is business agility to meet customers’ ever-changing expectations. Many IT leaders are modernising their organisation’s core systems so they can power the next wave of process innovation. Changing the business model is a high or critical priority for a quarter of software decision-makers, and 56% of them are considering changing their ERP provision.

However, the siloed instances and rigid, hard-coded processes in legacy ERP can prevent their owners from providing customers with today’s operational must-haves, such as “buy online, return to store”, pay-per-use subscription contracts, and add-on app marketplaces.

This has driven some organisations to look at modern ERP systems. Moderna Therapeutics’ implementation of SAP S/4 Hana, for instance, has enabled the biotech firm to mobilise resources better and accelerate innovation of multiple new products simultaneously. And Oracle SCM Cloud’s flexibility has enabled a large distributor of industrial products to deal with Covid-19’s disruption of its network. It is still supplying hospitals, nursing homes and supermarkets, despite closing trade counters at branches and changing work patterns.

Application usability to enhance employee experiences is also driving ERP modernisation initiatives, because today’s employees won’t accept applications that are hard to use. It’s not merely dated user interface (UI) design that irritates users and hampers their productivity. Good modern software also addresses many other flaws, such as using smart defaulting to reduce superfluous keystrokes and embedding analytics so that users don’t have to collect data manually from multiple sources.

Another factor influencing ERP modernisation is that organisations are striving to achieve operational excellence to serve customers more quickly or more cheaply. Digital operations platforms are a key source of differentiation now that customer experiences have become increasingly similar.

Digital operations platforms are smart, with artificial intelligence (AI) at the core to drive quicker, better decisions. They enable the shift from drill-down to alert-up, triggering proactive action instead of merely supporting post-mortem investigations of what went wrong.

For instance, an oil and gas producer is using SAP S/4 Hana to increase output significantly via better scheduling of predictive maintenance. And Kimble’s Resourcing Analyzer for professional services firms can improve customer service by optimising resource hiring and scheduling.

ERP inertia

Despite powerful arguments for digital transformation, 47% of software decision-makers who have implemented, or are implementing, an ERP product plan to retain it. Also, many of those who are considering a change may have no immediate plans beyond a minor upgrade to a more current release. As an illustration, SAP has had to extend support for Business Suite 7 for five years beyond when it originally hoped to have all customers on S/4 Hana.

One of the reasons for slow adoption of newer technologies that power digitisation initiatives is that CIOs have higher short-term priorities than a major transformation programme. Software decision-makers tell Forrester that their immediate priorities are imperatives such as increasing revenue and improving customer experiences. Ambitious – that is, expensive and risky – transformation programmes distract from these imperatives.

More than three-quarters of decision-makers who are considering changing their ERP suite are also considering changing their CRM application. They are likely to do the latter first if they believe it is faster, less risky and affects revenue more directly

CIOs can’t do everything at once. More than three-quarters of respondents who are considering changing their ERP suite are also considering changing their customer relationship management (CRM) application. They are likely to do the latter first if they believe it is faster, less risky and affects revenue more directly.

Moreover, Forrester’s survey pre-dates the Covid-19 pandemic. Your CIO is even less likely to start a global ERP replacement programme if you can’t do key elements in person, such as design thinking sessions, development scrums and user training. In a recent survey of 65 technology service providers, they predicted that 56% of ERP projects would be delayed or cancelled because of Covid.

Another factor is that in some industries, the new products are not yet fully ready. The major suppliers’ alternatives to their legacy ERP suites are broad portfolios under a shared brand, not monolithic suites like their predecessors. These portfolios lack vertical depth in some industries.

For example, Infor CloudSuite currently supports 60% of the industries that its on-premise portfolio addresses. The new applications still require extensive tailoring to each customer’s needs. Although this is now configuration rather than customisation, it still could be a long, costly process, especially if you take the opportunity to do a “greenfield” implementation that radically reimagines your business processes.

Early adopters also face many integration challenges, not only with third-party apps, but also between the separate products in suppliers’ portfolios that they have acquired, developed from scratch or re-engineered. For instance, SAP CEO Christian Klein blogged about how SAP is addressing the problem that “integration has become a challenge for many customers”.

Adding to this is the fact that it will take years for enterprises to replace all their legacy ERP instances. This is especially true for complex, heterogenous enterprises. IT leaders usually start with horizontal functions, such as finance, that they can standardise across the enterprise, before addressing those that vary by business unit, such as manufacturing. Many legacy business applications will remain in use for years, until they reach the front of the transformation line.

Downsize ERP footprints

A digital operations platform has a smaller functional footprint than ERP, because many functional areas that were modules in ERP are now discrete categories, including e-procurement, human capital management (HCM) and customer service management (CSM). Separating these from ERP enables you to implement one global solution in each area, which brings greater visibility and consistency where business units previously operated independently within their ERP silos.

For instance, Tata Steel used Anaplan to create a unified supply chain planning system, while Ross Video implemented Apttus to provide one consistent configure price quote (CPQ) solution across multiple legacy ERP instances, reducing quoting errors and duplicate data entry.

Alternatively, niche products can be used to support a business unit’s specific needs. For example, British Gas used Zuora’s subscription billing software for its Hive connected home division. Either way, reducing your ERP to its core scope will ease the eventual migration to a digital operations platform.

Some organisations are also using digital process automation (DPA) and low-code platforms to modernise the user experience. Developers use DPA and low-code platforms to create modern, mobile-first systems of engagement (SOEs) without having to change the back-end systems of record (SORs).

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These apps bridge gaps between data silos by displaying information from multiple sources in a single UI and using standard application programming interfaces (APIs) to create transactions in SORs. You can later modify those API calls to update your digital operations platform when you migrate to it, retaining your tailored SOE. Good SOEs eliminate manual workarounds that appeared over time to overcome ERP’s deficiencies. You can also use DPA to declutter your environment of ERP customisations that no longer spark joy.

For instance, Hitachi Rail used Neptune Software to develop more than 60 mobile apps that help employees update its SAP ERP system via handheld devices, using barcode scanning and intelligent defaulting for data entry. Employees no longer resist using SAP, and the data is closer to real time than when it relied on deskbound data entry clerks processing handwritten forms.

Another option is to use robotic process automation (RPA) to eliminate boring, repetitive processes. RPA can improve the employee experience because robots embrace laborious data entry tasks that cause human clerks to seek alternative employment. It can also be an effective way to paper over process cracks that ERP’s deficiencies have created. For example, many IT leaders use RPA to ameliorate the impact of data silos by automatically collecting information from multiple sources and presenting it to the human user in a single view.

However, take care not to spend money implementing RPA to partially automate a fundamentally flawed process. For instance, one large telco reduced employee churn in its financial services centre – and cut total headcount – by using Blue Prism’s RPA tools to automate the input of supplier invoices into its ERP system. That’s good, but it may have been able to achieve better results more quickly by replacing that part of its ERP suite with a modern, AI-driven procure-to-pay system.

Choosing between loving or listing your on-premise software estate is a strategically important decision for IT professionals, with vested interests on both sides. It is more complex than a simplistic return on investment analysis, based on reducing full-time equivalents. To focus your analysis on the most important drivers, ask yourself which option your organisation’s customers would choose, if you asked them.

This article is based on an excerpt from Forrester’s “On-premises ERP: should you love it or list it?” report, by principal analyst Duncan Jones.

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