Enterprise resource planning software is a cornerstone technology for many enterprises. But times are changing, and outdated ERP software is doing more harm than good.
When a major South African bank needed to make changes to its ERP, it instead used the opportunity to modernise its software culture. The bank’s leaders realised that they could cut costs and get more value from their data and processes if they moved away from ageing ERP software in favour of cloud-native platforms.
This shift yielded numerous benefits, paving the way for better automation, integration, and expanded user functions. It radically impacted expenses, reducing the burdens of running an elaborate and outdated ERP system.
The hidden costs of holding onto an ERP
Software flexibility improves competitiveness by adding modern features, extending services to more users and branches across networks, and reducing user licenses and module costs.
“Flexibility is one of our biggest selling points,” says Warren van Wyk of payroll platform PaySpace by Deel. “For example, our customers often need payroll legislation updates. This process can take months and be expensive on a traditional ERP. The changes often only appear after the legislation has taken effect, risking fines and adding extra pressure on payroll and HR staff to square the differences. But using our cloud platform, we can push the updates proactively and at no additional cost to the customer.”
Many ERPs don’t have that flexibility in their software or business model. ERPs hail from a different era. The first proto-ERPs appeared in the 1960s, and the concept reached maturity during the Eighties and Nineties. But by the turn of the millennium, a new breed of software had started to rise: cloud-native platforms. Pioneered by companies such as Salesforce, Google, and Amazon, these platforms revolutionised how we integrate systems, automate processes, and use data.
ERPs are singular pieces of software that do many things by adding modules for new features. Collaborating with external software to handle certain critical tasks is counterintuitive to how ERPs operate.
This drawback became a serious gap. Consider integration, which enables companies to combine different specialist software services, share data effectively, and maintain stronger financial liquidity by lowering license fees and restrictions. Integration mitigates the risk of software lock-in. If an integrated service doesn’t work out, the business can replace it without needing to replace everything else.
Software keeps evolving new capabilities that companies want to use. Recent examples include advanced analytics and artificial intelligence. It’s no surprise that, according to Gartner, 81% of enterprise buyers rate seamless integrations as very important when evaluating software.
Though ERPs can add such features, it’s often at much greater cost and with additional complexity. Outdated ERPs consume money for other reasons too. They have expensive and inflexible licenses that require large upfront purchases. They often run on on-premise hardware that the company must buy, own, and maintain. The ERP business model is more costly: ERPs profit from individual company purchases, whereas cloud-native platforms use scaling multi-tenant models to significantly reduce per-user costs.
Cloud platforms moved the goalposts
Many enterprises still hold onto overwhelmingly costly and complex outdated ERPs. Compared to cloud-native software, it’s evident where those hidden costs are: they have high maintenance costs, reduce competitiveness, and provide fewer opportunities to use data, automation, integration, and artificial intelligence to save time and money.
Enterprise-grade cloud platforms are often superior alternatives to customer-owned monolithic software suites. Companies that held onto their ERPs are realising they get better results by integrating different software solutions that they lease.
The bank mentioned at the start of this article took that approach. Rather than replace its incumbent ERP with a different ERP, it integrated an HR service and a payroll platform with its internal data, says Warren van Wyk:
“This customer realised that they don’t have to own the software as long as they own and control their data. They could phase out parts of the ERP with newer cloud platforms and focus on getting more from data. Soon, they started seeing additional benefits. They extended that data access to more applications, and they integrated HR and payroll features into their finance system and employee app. It started as a change from their ERP but evolved into an organic transformation for their business.”