The costly and resource-intensive upgrade paths recommended by Oracle and SAP are not the only way for businesses to digitalize.
Digital transformation (DX) is the buzzword these days, and for many companies, a key component of their digitalization is upgrading their core enterprise resource planning (ERP). Furthermore, most ERP vendors are promoting large-scale re-platforming projects as synonymous (or necessary) with innovation.
True, as part of an ERP modernization effort, companies are looking to leverage the latest technology and ongoing investments that vendors are making in their new cloud platform. However, for companies that have already invested millions in building out their ERP core, undertaking a migration is more than just an upgrade effort—it is a significant re-platforming, investment, and business disruption. The prohibitive cost alone makes it an unrealistic option for many businesses.
In particular, customers evaluating a potential move to S/4HANA are betting on a relatively immature platform that does not yet have the feature parity with their current ERP footprint.
Also, an ERP upgrade or migration to a new ERP cloud platform is not the only path to innovation.
Innovation without ERP upgrades
In Valoir’s research looking at SAP customer strategies and how to maximize the value from their ERP investment, we have found that many are looking at ways to innovate and deliver more value from their existing ERP core without migrating to S/4HANA.
We have analyzed the experiences of customers who have decided to move to third-party support from vendors as a means to reduce the overall ongoing cost of their ERP footprint, freeing up cash and resources to drive innovation.
Third-party support is enterprise application support that is not from the software vendor but that which is provided by an independent vendor as part of a software maintenance contract. The software vendor maintenance agreement is usually separate, or at least a separate contract line item, from the software license agreement which gives customers the ability to access and run the software.
Today, third-party support is provided primarily for SAP and Oracle ERP applications and databases that were originally licensed over the past few decades. The maturing of third-party support into an accepted mainstream market has evolved slowly over the past 15 years. While early customers were focused almost entirely on cutting maintenance costs and eliminating costly updates out of necessity, the widespread adoption of third-party support has happened not simply because of cost containment but also as part of an overall self-funding innovation strategy while retaining control of a corporation’s ERP roadmap.
Enterprises are now using third-party ERP support to accelerate DX outside their core ERP in key areas such as Cloud; human capital management and customer relationship management CRM); and intelligence and automation.
They can maintain the availability, security, and performance of their ERP core while innovating around the edges, taking advantage of emerging technologies and their benefits without the cost and disruption of a core ERP re-platforming.
Cloud applications are a key part of delivering ongoing innovation. We found third-party support customers are taking advantage of the flexibility and rapid time-to-value of cloud applications to deliver innovation in ERP-adjacent areas such as logistics and supply chain.
Cloud applications deliver both lower initial ongoing costs and greater flexibility over time. Investing in cloud supply chain and logistics applications enable companies to drive costs out of operations and distribution, increase visibility into core data from ERP and other systems, and drive more rapid data-driven decision making. They also enable companies to rapidly adapt and respond to changes in supply and distribution chain disruptions and take a more proactive approach to supply and distribution chain planning.
- Human capital management and CRM
In the HR space, some third-party ERP support customers are maintaining their original core applications for payroll and basic HR functions, such as PeopleSoft or SAP HR, and investing in modern HR applications for areas such as talent; benefits administration and management; and performance management.
They are able to do this because their third-party ERP support vendor’s support enables them to stay current on payroll tax and regulatory requirements. Other customers are taking the savings from third-party support—often 50% of license maintenance fees and potentially up to 90% of their previous overall ERP maintenance burden—to fund HR transformation initiatives more broadly with modern cloud HCM applications, either from their existing ERP vendor or another solution provider.
In the CRM arena, companies are leveraging third-party support savings to invest in sales, service, and marketing technologies to improve customer engagement because they were able to free up resources previously devoted to ERP-related support issues and case resolution.
With more staff time available to devote to new CRM projects and initiatives, they were able to drive greater customer satisfaction and execute the business’s vision of customer-facing digital transformation while keeping IT resources engaged and challenged.
- Intelligence and Automation
More broadly, companies have found that the move to third-party support enables them to focus on developing skills and expertise in DX areas such as robotic process automation (RPA), analytics and AI—bringing data from their existing ERP core to drive more intelligent processes and decision making.
In many cases, this drove greater partnership between IT and line-of-business managers, leveraging low-code and no-code platforms to develop new applications and automate processes that previously required manual work.
Staying competitive with ERP cost savings
For sure, enterprises need to continue investing in new technologies and innovate not just to differentiate, but to stay in the competitive game. However, a broad, ambitious, and potentially-risky ERP re-platforming is not the only answer.
As we have found in looking at the experiences of customers leveraging third-party ERP support, companies can shift cash and resources away from maintaining and supporting their ERP core to devote to innovating and investing in CX/CRM, human capital management, and ongoing improvements across the organization.