What is Enterprise Resource Planning modernization? ERP modernization is a call on enterprises from the digital transformation school of thought, which espouses the integration of technologies into all facets of the business, to migrate their companies away from their on-premise ERP systems, which are moving towards obsolescence, and modernize them in the cloud.
The cloud provides a future-proof environment. The future demands more data storage, more system agility, the ability to control costs as demand shrinks and grows, and a way to offload high capital outlays all while securing and protecting proprietary data. These are challenges for on-premise systems compared to digitally native companies born in the cloud.
Legacy on-premise ERP systems are constrained by the computers they live on, granting access there only. If more resources are required to support them, then that can mean new capital outlays and physical system installations. Capital expenses and installations don’t necessarily exist in the cloud for the user—vendor supplied resources are self-serviced on-demand through web portals anywhere, at any time.
The cloud concept in its earlier days of inception was too young to support the enormity of ERP solutions, but today is a different story. Cloud ERP systems using dedicated fiber lines have proven that the monolithic task of integrating, monitoring, and executing workflows performed by ERP software is possible, if not better, in the cloud. Several cloud features lend support:
Cloud Security — The cloud grants security significant advantages over on-premise sites. While both can deploy similar technology to protect themselves, the cloud more easily stays current with cybersecurity trends, because cloud providers, especially in the case of the major cloud providers, typically operate at higher security measures than on-premise, if only because they may have the data for many users under their responsibility. For example, leaders like Google continuously improve their policies, such as utilizing automatic data encryption on all their servers, that automatically benefit consumers.
Cloud Storage — Data storage in the cloud is elastic, scalable, and on-demand, meaning it can simply grow and shrink as needed. Compared to on-premise servers, which need to be physically expanded, if the company needs to scale. Another dimension of cloud storage is it’s divisibility, which benefits business goals in several ways. Storage can be divided into geographic locations: to meet the requirements of regulations that demand certain data reside on servers within national boundaries, while other data can be replicated for redundancy and moved closer to end users improving performance.
Cloud Redundancy — As mentioned in cloud storage, the uniqueness of the cloud to perform as a single system with its underlying components distributed globally also enables redundancy strategies. Strategically redundant systems are essential for many operations that must maintain near perfect uptime, or high availability.
Cloud Updates and Maintenance — Legacy systems are a challenge to update, often calling for unavoidable and lengthy downtime. This can be mitigated by scheduling updates during low usage times. In the cloud, updates are rolled out by the provider, eliminating that burden from users. Because of cloud container technology, updates are also rolled out using automation across all elements according to a control schedule, and to the user appear seamless.
Cloud Costs — Cloud costs are controlled through service level agreements. Combining a reputable service provider with service level agreement guarantees exceptional cost controls. And with costing granularity, paying only for what you use, admins can easily understand where their budget is going.
When is the right time for ERP modernization?
The simple answer is that Enterprise Resource Planning modernization to the cloud should be planned before potential bottlenecks become larger issues. Legacy systems present technological bottlenecks that can weigh down service performance. Moreover, early cloud adopting competitors can leverage their cloud advantages and attract business away from less responsive companies.
This means that ERP modernization is an anticipatory strategic practice. Contrasting on-premise legacy ERP systems with cloud native ERP systems, as expected, cloud native ERP already benefits from cloud advantages that produce more flexible, and potentially more secure and resilient systems. While the idea is not to scrap legacy ERP systems wholesale, legacy systems will, overtime, begin to underperform their cloud counterparts which are more readily able to integrate with new tech applications.
One strategic approach to modernizing ERP systems, by system performance, is to understand your current system architecture, in particular the most critical systems. What overlapping domains can be performed better in the cloud? Think migrating on-premise data storage to scalable cloud storage.
Cloud storage offer effective cost management for companies. Performing a cost benefit analysis of legacy ERPs can reveal that the potential upkeep costs of legacy systems simply outweighs the onetime cost of modernization immediately. Other points to consider when deciding on a modernization approach are:
Human errors increase in tracking, either through manual processes or data entry
Reporting takes significant time to prepare by hand or other systems
Hardware is dropping out of style
Current ERP software has become discontinued
Current ERP software aged beyond current compliance environment
The cloud advantage is not being leveraged
Benefits of ERP modernization
ERP systems integrate company-wide mission-critical applications that form the backbone of many organizations, supporting systems from point-of-sales, payroll, inventory, suppliers, and more to keep workflows running on time. Many legacy systems have been hobbled together over decades with many integrations, upgrades, and patches, forming an impossible to untangle mass of interworking software components. Moving to the cloud can help do away with this spaghetti code.
Modernizing ERP systems in the cloud mainly benefits companies by future-proofing their critical IT business systems against obsolescence and the increasing difficulty of managing legacy systems that fall behind new technology and practices. Among those future-proofed advantages:
Increased Innovation — Business technology is constantly evolving, presenting novel use cases for emergent technologies. Artificial Intelligence and Internet of Things, for instance, emerging only recently, have become integral in many organization techstacks. To innovate using new technologies requires an easy way to integrate with them. The cloud provides this link. Modernized ERP systems in the cloud have capabilities that on-premise systems tend to lack, which allow them to integrate quickly with new technologies.
Improved User Experience — The division between IT departments and users of ERP systems tends to cause difficulties interacting with the system. While this is a case by case evaluation, cloud-based ERP, accessed via the web, can dramatically reduce the frustration that employees face interacting with complex anachronistic systems.
Orchestrates Data Across Multiple Disparate Systems — In the cloud, disparate systems form connections more easily through standard protocols. This means financial systems can connect and share data with analytics systems synergizing insights that may not have yet been possible to calculate. In common parlance, this means companies can more readily bring down data silos in their organization. The ability to link and share data, as data is becoming the de facto power asset of many firms, can amount to significant benefits.
Creates New Holistic Views — A corollary to orchestrating data across systems is that new holistic views of business metrics can be drawn on ERP data. Shared systems provide a strategic viewport into the performance of the company.
Abstraction Advantages — Migrating ERP systems to the cloud demands a paradigm shift for companies. Moving to the cloud allows businesses to abstract away what they do with their data from the underlying technology that provides a home for their data. Working in the cloud frees up time for companies to focus their efforts on their data lifecycles and mining data for value.
Why is ERP modernization important
While legacy ERP systems may have delivered, and continue to deliver, exceptional performance, the technological shifts across all industries has created space for many of these once powerful systems to fall behind. This means businesses of any size are facing choices to either remain and risk their fate in these conditions, or modernize to the cloud. The cloud provides exceptional generational advantages over older technology, most importantly the scale and flexibility that modern ERPs need to integrate multiple systems and contain the massive stores of data they process. There are several reasons to modernize your company’s ERP system.
Improve Operational Efficiency — Companies need to consider whether their current systems adequately achieve their operational goals. Acquisitions, full system upgrades, shared-services all carry demands that legacy systems can be challenged to overcome compared to operating in the cloud.
Support Digital Transformation Efforts — The cloud and pervasiveness of mobile devices has altered the expectations of how to interact with computer systems. Legacy ERPs simply have not kept pace with these new digital technologies that are providing real-time analytics, mobile access, collaboration tools, and a single source of truth that becomes the backbone for all company interactions.
Anticipate or Respond to Growth — With growth comes greater responsibility, whether that be increased technological complexity, compliance requirements, customer growth, or new markets. The cloud can help companies absorb the impact of a growing system with business performance.
How to start ERP modernization
Like everything that you want to succeed in, planning is the crucial beginning step in starting to modernize ERP systems to the cloud. The chosen deployment team should include the implementing partners and cloud providers, drawing on their expertise, but never handing over control. Partners and cloud providers are there to help solve the unique configurations of your modernization strategy, underlying the need for effective communication. The following components help in supporting a modernization strategy.
● Clearly Define Project Goals — If it is measurable then it is improvable. Setting agreed upon KPIs will help the entire team build consensus and understand progress towards the strategic goals. In this measure, KPI baselining is an essential practice.
● Map Processes And Inventory Systems — Before any cloud modernization, the entire IT system must be mapped and every process and system documented, including all internal and 3rd party solutions. If there are roles associated with data ownership, management, and use, they too should be documented.
● Ensure Executive And Employee Communications — While modernizing to the cloud will rarely, if ever, be pursued without executive support, it is advised to ensure that executive understanding is aligned with the implementation teams to guarantee that the transition achieves success.
● Design An Implementation Approach — How an organization approaches modernization to the cloud is unique to their own needs. Some companies that have few systems, may decide to migrate to the cloud in one move. Others with more complex systems will often choose incremental migrations, moving their core systems first, or choosing a hybrid configuration.
● Embrace Best Practices Models — A distinct advantage of cloud systems is that modern best practices are built into the system already. Enforcing best practices has become easier.
● Baseline Reporting And Analytics — By baselining systems, real-time analytics gain powerful context. Using advanced data visualizations to provide quick insight, reports can be quickly generated to add greater insight about ERP processes.
● Inclusion And Cloud Culture Adoption — The ERP system serves end users, they must be included along the process to provide feedback in turn ensuring a successful migration. Additionally, company cultures that are not cloud forward must be educated on the benefits of the cloud and encouraged to adopt cloud first thinking.
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