ERP modernization: How to do it right

Enterprise Resource Planning (ERP) systems are at the core of many successful organizations. ERP systems are a central hub for core data, ensuring consistency and accessibility across various departments. This eliminates data silos and fosters collaboration.

However, legacy ERP systems, burdened by technical debt, struggle to keep pace with rapidly changing regulations and ever-growing demands. Older ERP systems were built for storing data on your own computers (on-premise). They can't keep up with the needs of today's businesses that rely on the internet (cloud-based) to access and manage data quickly and efficiently. This slows growth and increases operational risk. To bridge this gap and fully utilize modern ERP solutions, businesses can leverage the expertise of software engineering services providers.

By modernizing ERPs, businesses remove limitations and gain the agility and insights needed to succeed. Legacy ERP systems, while familiar, can become outdated and limit this agility. Let's explore how modernizing your ERP tackles these shortcomings.

Keeping an outdated ERP system is a false economy. While outdated ERPs hamper efficiency, hinder growth with limited features, and put your data at risk, the most alarming consequence might be user apathy. Many companies find that older ERP systems, while familiar, can become outdated and hinder employee productivity. Studies show that user adoption for these systems can be as low as 27%. This can lead to missed opportunities for streamlining workflows and making use of valuable data. Upgrading to a modern ERP system is an investment, not a cost. Before exploring the benefits of modern ERP systems, let's look at the limitations and challenges associated with legacy ERP systems:

1. Outdated technology: Many businesses continue to use older ERP versions that are no longer actively supported by vendors. This lack of support means these systems are incompatible with modern hardware and software.

2. Limited functionality: Legacy ERPs may not have the features and functionalities required to meet a business's evolving needs. As your organization grows and adapts, the limitations of your old system become apparent, potentially hampering your ability to implement new strategies or processes.

3. Poor user experience: Legacy ERPs often have clunky and outdated user interfaces that are difficult to navigate and learn. This can lead to decreased user adoption, employee frustration, and reduced productivity.

4. Integration challenges: Integrating a legacy ERP system with other modern business applications can be complex and time-consuming. Legacy systems' outdated technology and data structures can create significant compatibility roadblocks, leading to increased costs and decreased efficiency.

5. Data security vulnerabilities: Older ERP systems often have security flaws due to their outdated security architecture. These vulnerabilities make them prime cyberattack targets, potentially exposing sensitive business data and causing significant financial and reputational damage.

6. Business challenges: Maintaining an outdated ERP system can burden your IT resources. Skilled IT personnel are required to constantly maintain and troubleshoot the system, diverting their time away from focusing on strategic initiatives. Additionally, legacy ERPs may struggle to meet modern workforce expectations, such as providing employees with a mobile or user-friendly interface.

7. Mounting costs: Support and maintenance costs for legacy ERP systems can become a significant financial drain as the systems age. Vendors may phase out support for older versions, forcing businesses to pay a premium for extended support or invest in costly upgrades.

Transitioning to a modern ERP system through a strategic ERP modernization project can address these limitations and unlock significant business benefits.

Studies show a strong positive impact, with 88% of organizations reporting overall improvement after modernizing their ERP. This translates to a solid return on investment, with the average payback period being just 2.5 years. Furthermore, 95% of businesses experience improved processes. The positive effects of ERP modernization include:

Improved user experience: Modern ERPs boast responsive interfaces that adapt to different devices (desktops, tablets, smartphones) for optimal user experience.

Enhanced security: Robust security frameworks with features like multi-factor authentication, role-based access control, and data encryption safeguard sensitive data.

Seamless innovation: Modern ERPs integrate with tools like Artificial Intelligence and low-code/no-code development platforms, enabling businesses to leverage automation, data visualization, and faster application development.

Streamlined processes: Automation capabilities in modern ERPs reduce manual errors and improve efficiency by automating tasks like workflows, self-service portals, data integration, and reporting.

Cloud-based advantage: Cloud deployment offers benefits like remote access, potentially lower costs, automatic upgrades, and greater scalability than on-premise systems. According to Panorama Consulting Group, the demand for cloud ERPs is growing—21% of companies shopping for new systems prioritize fully cloud-based solutions.

A survey by IDG found that despite challenges, 91% of enterprises plan to modernize their ERP. Most of them see third-party modernization partners as a way to address IT resource limitations and optimize costs by designing efficient modernization strategies. Let's take a look at the ERP modernization stages your tech partner will take you through:

1. Assessment

• Identifying system limitations: Your tech partner will evaluate your current ERP system's performance and limitations.
• Evaluating business needs: Together with you, your tech partner will analyze your business needs and required functionalities.
• Conducting a SWOT analysis: Strengths, weaknesses, opportunities, and threats will be assessed to identify areas for improvement.

2. Planning

• Setting clear objectives: Together, you and your ERP vendor will define achievable goals for the modernization project aligned with your overall business strategy.
• Defining success metrics: You and your technology provider will establish metrics to measure project success (e.g., efficiency gains and cost savings).
• Allocating budget and resources: Allocate necessary financial and human resources for the project.
• Building a project team: Assemble a team with representatives from all relevant departments.
• Your ERP vendor will help you to choose the right approach:On-premises vs cloud-based ERPHybrid ERP solutionsCustom vs. off-the-shelf solutions

3. Implementation

• Data migration strategy:Data cleansing and preparation: Your technology provider will ensure data accuracy and consistency before migration.Ensuring data integrity: Your tech partner will maintain data integrity during migration using reliable tools and techniques.Data migration tools and techniques: Your provider will use tools like ETL (Extract, Transform, Load) for smooth data transfer.
• System integration:Integrating with existing systems: Your ERP vendor will ensure seamless integration with existing CRM, HRM, etc.API management: The implementation partner will utilize APIs for communication between different systems.Real-time data synchronization: Your tech vendor will implement real-time data synchronization for all systems.
• Customization and configuration:Tailoring ERP to business needs: Your partner will customize the ERP to fit your unique business processes and needs.Configuration best practices: Your vendor will follow best practices for system configuration (user roles, permissions, workflows).

4. Change management

• Preparing employees for the transition: Communicate the benefits and provide detailed transition plans.
• Training programs and resources: Develop comprehensive training programs and user resources.
• Managing resistance to change: Address potential resistance and foster a positive attitude towards the new system.

5. Optimization

• Leveraging advanced technologies:Cloud computing: Your ERP partner will enhance flexibility and accessibility with cloud-based ERP.Artificial intelligence and machine learning: Automate processes, improve decision-making, and gain deeper insights.Internet of Things: Connect devices and systems for real-time data collection and operational efficiency.Blockchain: Enhance security, transparency, and traceability in your ERP system.Advanced analytics and business intelligence: Gain valuable insights and improve data-driven decision-making.
• Ensuring security and compliance:Data security best practices: Your technology vendor will implement robust data security measures to protect sensitive information.Compliance with industry standards: Your provider will ensure compliance with relevant industry regulations.Risk management strategies: Your ERP vendor will develop strategies to identify, assess, and mitigate potential risks.

6. Continuous improvement

• Measuring the success of ERP modernization: Monitor key performance indicators (KPIs) to track progress.
• Continuous improvement processes: Regularly evaluate and enhance your ERP system based on feedback and performance data.
• Post-implementation support: Your tech partner will provide ongoing support for a smooth system operation (technical support, updates, user training).

Partnering with a skilled technology vendor throughout these six phases will ensure a smooth and successful ERP modernization. Remember, modernization is an ongoing process. Your ERP partner will collaborate to continuously improve and adapt your ERP system, keeping it at the forefront of your digital transformation strategy.

Read more: 12 reliable ERP development companies around the globe

ERP systems are crucial for businesses seeking cost reduction, improved visibility, compliance, automation, and streamlined reporting. While ERP serves as the enterprise backbone promoting standardization and collaboration, maintaining legacy systems and licenses can be expensive and stifle innovation.

ERP modernization isn't just about keeping pace with technology; it's about gaining significant business benefits. Studies show a strong ROI with improved user experience, enhanced security, and streamlined processes.

Yet, modernization requires a strategic approach. Partnering with a skilled technology vendor can help you through every step, from assessing your current needs to planning, implementation, and ongoing optimization. By understanding your unique business goals, they can provide you with a customized solution that will maximize the value of your ERP system and accelerate your digital transformation.

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