Consequently, many companies consider upgrading their ERP apps on a regular basis. But the upgrade decision causes no small amount of corporate hand wringing. Can we wait or should we upgrade later? How long can we wait? And the big one: Is it worth the expense?
“Upgrade is a tough decision right now. It’s a real dilemma,” says Forrester analyst Paul Hamerman. “Companies are really having a tough time justifying the cost of the upgrades.”
On the one hand, the advantages of an ERP upgrade are enticing. Adding new functionality is attractive, and moreover, upgrading can allow a company to extend its support options. Upgrading gives a chance to consolidate ERP platforms; to reduce customizations; and – this is key – to synchronize tools and infrastructure releases. Looking ahead, an upgrade keeps a company’s options open for SOA releases.
On the other hand, upgrades are avoided for good reason. Besides the obvious cost, some companies find that their current ERP apps are mature, and that enhancements aren’t compelling. Some companies have so customized their existing ERP tools that the upgrades are logistic headaches.
Support services often do not provide value, leading to disenchantment with a given package. And naturally, if you’re looking at another vendor, you don’t want to upgrade with your current one.
Amid all the pros and cons of the upgrade decision, some companies reach a kind of “paralysis by over analysis” mode. They decide not to upgrade partially because the decision making process is simply too complex.
And anyway, if it ain’t broke, why fix it?
Wanted: New Tools
The factor that often pushes companies toward an ERP upgrade is desire for an array of hot new tools that will significantly boost productivity.
Indeed, while justifying an upgrade is always difficult, “The ones that are most appealing are when the newer release has significant new functionality that the customer needs,” Hamerman says. “That’s when it’s easier to justify, as opposed to upgrading just to stay on a roadmap path that will lead you to the SOA product.”
If a company upgrades without a specific clearly beneficial functionality in mind, it risks upgrading based on vendor sales technique rather than business needs.
In short, the best ERP upgrade decisions are made after reviewing specific packages.
For instance, “it doesn’t make sense to upgrade now to Oracle Fusion, because it’s [the new functionality] not there…On the other hand, Oracle has a new release coming out, EBS 12 [Oracle E-business Suite 12.0], which I think has a lot of new stuff in it.” (EBS 12 was shown at OpenWorld, but with no release date given; it’s likely due out in mid 2007.)
In a similar vein, “I’ve seen a lot built in to, say, the PeopleSoft 8.9 release – it has a lot of new functionality. But the 9.0 release that’s coming out – hasn’t come out yet – has very little by comparison.”
Buyers have to do their homework. “I really think it depends on the releases,” he says. “I think customers have to look at the business value of the release and make decisions based on that.”
Consolidate or Bust
Another key value an enterprise gains from upgrading is consolidation of its various stand alone ERP packages. In an ideal world, it’s more efficient to have fewer ERP packages monitoring more data per package, rather than cobble together a crowd of EPR apps for each vertical.
“It’s a trend that’s going on, and most companies are going in this direction, to have fewer and fewer ERP systems running,” Hamerman says. “And the systems are now more scalable, to the extent that they can move toward the notion of a global, single instance type of a product.”
The goal is to have one product providing global visibility into financials, revenue streams, human capital, and other data metrics.
Companies have, for the most part, not yet arrived at this ideal state. “Looking at the ERP packages, there still tends to be a lot of disparate components that are either homegrown or older packages,” he notes.
Next page: Cutting Costs
Apart from the upgrade decision, firms are always looking for ways to cut the costs of their ERP packages – certainly these complex software packages don’t come cheap.
“One of the biggest pain points right now, is the ongoing costs,” Hamerman says. Reducing costs is difficult, he concedes, yet “You do it through renegotiating your contracts.”
In particular, look at your ‘shelfware,’ that is, the applications that have been bought but never fully used. Unfortunately, “A lot of software got sold that never got implemented,” he says. “Customers are paying maintenance on it, so they need to try to get those applications off of maintenance [fees].”
One trend that might offer lower costs in the future – and is already affecting the ERP market – is the software as service (SaaS) model. These purely Web-based applications are deployed on a subscription basis.
The SaaS model is relatively minor in ERP, Hamerman says. However, “It’s definitely here and there are a number of good examples. Like Salesforce.com, NetSuite, and a new player that has just emerged, Workday – [PeopleSoft founder] Dave Duffield’s new company.”
“I think the challenge, though, is to build in enough flexibility for those products to move up into large organizations.”