Five modernization strategies for enterprise resource management

There’s a common myth in the software market that large companies are content to stay with legacy solutions and won’t adopt newer cloud, mobile, or social solutions. The newer enterprise resource planning (ERP) solutions, the argument goes, only work for small and medium enterprises.

However, both large and small enterprises are increasingly frustrated with their on-premise technology vendors. Especially because these consumers know that, historically, few vendors are able to successfully navigate major architectural shifts.

Once you identify the right system for your company, it should be able to run an impressive array of business functions:

• Financial management and planning
• Order, production, supply chain, warehouse fulfillment, and procurement
• Customer relationship management, known as CRM, and sales
• Human resources functions
• Global business management

Tired of waiting for vendors to modernize their ERP environments, companies are doing so on their own, using the five key strategies outlined below.

Five modernization strategies

Two-tier enterprise resource planning

In the 1980s, many multinationals adopted two- or three-tier application strategies — a mainframe-based application for corporate and domestic subsidiaries and regional hubs and a decentralized version for international subsidiaries.

Today, with improved telecommunications around the world, many companies are deploying cloud applications in smaller subsidiaries and choosing not to provide local IT infrastructure or support. This global consistency increases visibility and dramatically improves results consolidation. It also significantly lowers costs because companies now only need to pay for a handful of users in each of their smaller subsidiaries.

Ring fence

A common strategy used by many large companies is to ring fence back-office ERP functionality with specialist solutions. This allows those companies to run mission-critical business processes, including order-to-cash, revenue recognition, or multicurrency accounting. This approach gives businesses a chance to innovate at the edge and learn about newer cloud and computing models. The benefit is having one system that can meet all your needs.

Rip and replace

Many midsized companies — especially those being spun off by a parent or taken over by private-equity investors — view that life event as an opportunity to move to a new ERP system. While complete replacements can be painful for parent companies, the benefits of a newer system are often enough motivation to make the swap.

Next-generation application management

One of the biggest costs for any company using an on-premise system is ERP application management. It isn’t uncommon to see teams of 30, 50, or 100 people supporting these businesses, doing routine maintenance, small customizations, and upgrades. Many customers are looking to shrink that cost in the following ways:

• Moving to global delivery
• Shifting to an offshore model
• Bringing some outsourced work back in-house

The NetSuite cloud model, for example, delivers many of those tasks as part of its subscription service. An outside consultant can help manage the implementation and handle process queries and how-to questions, which allows users to implement new features as well as fix issues in business workflows and other application integrations.

Small steps

For many companies, taking small steps toward the cloud is the preferred approach. Modernizing infrastructure is a confidence-builder as they prepare to tackle their ERP application. They try out cloud computing and storage services and find the costs and service levels to be better than what they get from their internal data centers or hosting providers.

Other companies are moving to private clouds, which typically deliver a fraction of the economic benefits of public clouds. These businesses prefer not to give up their customizations or feeling of control, however, and private clouds still provide a level of virtualization savings compared to prior hosting contracts. They also prepare companies for the cloud’s pay-as-you-grow model, shifting previous infrastructure capital expenditure investments to operational expenditure budgets.