In a few weeks we host the Rootstock-sponsored webinar “5 Steps to Digital Transformation for Manufacturers.” Today we chat with Rootstock CMO Tom Brennan, a speaker during the webinar, about cloud ERP, updating legacy systems and more. Take a look…
Smart Industry: Are business owners intimidated by making their first foray to cloud ERP?
Tom: Enterprise Resource Planning (ERP) is a mission-critical system. It’s essentially the backbone of a
business, connecting every facet of a company’s operation. Therefore, executives are naturallyconcerned about making changes to their current ERP–many of which are legacy on-premise solutions. Making a big change, like moving to the cloud, comes with an understandable level of anxiety. The last time most companies implemented ERP it was probably a painful and stressful experience. What executives might not realize is that today’s cloud ERP can eliminate a lot of the complexities surrounding deployment, even though apprehension over the change still rightfully exists.
Smart Industry: What’s the remedy for this?
Tom: Sometimes there is no choice but to make the move to the cloud. Legacy ERP systems can actually cripple a company and hold businesses back, or they can represent a risk in and of themselves. For example, due to their age, there’s a lack of IT professionals skilled in older ERP technology. As a result, there may be no other choice but to transition to a modern ERP platform.
The good news is that a modern cloud solution eliminates many of the prior requirements and complexities of deploying ERP. For instance, companies don’t have to worry about maintaining a stack of technology, including hardware, operating systems, and security systems. These capabilities are now packaged as accompanying services that are part of the cloud platform–like recycling or landscaping is provided as part of a housing association. These are things companies simply don’t have to worry about, which makes implementation less cumbersome. In fact, IT departments are actually freed up to improve business processes, integrate other systems or concentrate on new technologies such as artificial intelligence.
Changing a system that’s been in place for 10 years or more can still be difficult for people to understand. For example, there’s still plenty of work to be done in defining business processes and data elements, such as stock keeping units (SKUs), bill of materials (BOMs), routings, and the chart of accounts. Cloud ERP makes it easier to prototype the system, but it still requires thorough analysis, planning and execution. Managing the people-side of this change still requires careful consideration. All of these factors haven’t changed.
Smart Industry: What are usually the costliest elements of updating/replacing legacy systems?
Tom: There is an investment and effort required to move from legacy to cloud ERP in terms of training, data conversion, business process design and more. But many experts, including those at Computer Economics, say the cloud recoups costs and saves money over the long term. That’s because legacy environments require a stack of software systems, security and hardware that has to be constantly managed and updated. The costs associated with this stack go away with the cloud. Cloud systems also reduce the need for ongoing technology maintenance and support, which enables funds to be redirected toward new initiatives and innovation. In fact, Computer Economics estimates that companies using legacy systems spend about 80% of their IT budgets on maintaining existing systems, with only 20% left for new initiatives. After moving to the cloud, Computer Economics estimates that companies using cloud solutions utilize only 69% of IT budgets for support, with as much as 31% directed toward new initiatives, which is a significant improvement.
Smart Industry: Can an enterprise take baby steps toward full use of the cloud for ERP?
Tom: Yes, we’ve seen many companies take incremental steps toward cloud ERP. In fact, no matter where organizations are in terms of their transition, there are ways to achieve those goals at a lower initial cost and with reduced risk—if they have the right tools, expertise and strategy in place.
For example, one way to take an incremental step is to leverage our ERP Data Framework to move legacy ERP data to the cloud. The ERP Data Framework is a set of pre-defined cloud ERP objects that can easily be populated with data from legacy ERP systems. Once the data is stored in the cloud, users can access the data with mobile devices or perform advanced analytics. The beauty of this is that companies can still use their legacy ERP; they don’t have to contend with the disruption of a new ERP implementation. They simply move the ERP data and leverage the cloud for greater visibility. Our experience is that once they get a modern, 360-degree view of their company and customers, they usually want to move more ERP processes to the cloud because they’ve seen the potential, and they want to achieve even greater efficiency and business benefits.
Another way we’ve seen companies take a moderate step toward modernization is through a strategy called two-tier ERP. This approach enables companies to implement cloud ERP for just one business unit or business process. For example, perhaps operations for one particular division of the company does not fit the way their legacy ERP is configured. Companies can utilize their legacy ERP for their other units but leverage cloud ERP for this one area that requires immediate modernization. And when a company adopts cloud ERP for just this one part, they often see the advantage of moving more processes over.
Smart Industry: Is the world of manufacturing coming around to the benefits of cloud ERP?
Tom: Yes. The manufacturing industry is coming around to the benefits of cloud ERP. The cloud first took hold in customer relationship management (CRM), then human capital management (HCM); now it’s transforming key ERP processes. Early cloud ERP adopters were primarily in service and high-tech companies, but now we’ve reached the stage where mainstream manufacturers and distributors are making the move to the cloud for both financial and strategic benefits.
The cloud lowers costs, but it also makes companies smarter through the use of advanced analytics and business intelligence tools. Companies can become more agile and responsive to customers, suppliers and employees. Executives also realize cloud solutions can better position them to compete and adapt to market conditions. In short, the cloud provides a winning proposition, and staying on a legacy system could be akin to getting left in the dust—it’s just no longer a viable option.