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Should You Keep or Replace Your Legacy ERP Software? Here’s How to Decide

Written By: Phil Reney
Published On: February 16 2012

There are three questions that have been around for just about as long as enterprise resource planning (ERP) software itself:

1. Do I stay with my current ERP system?
2. Do I upgrade to the next version?
3. Do I go with a new ERP system?

These questions are particularly relevant if you are operating an out-of-support system. But don't make the mistake of thinking that your legacy system is the one thing keeping you from an Eldorado of increased margins. It's certainly not the case that a new system will necessarily help you make good on that vision.

That said, these questions are inevitable if you doubt the ability of your ERP system to sustainably support your activities. To help you sort them out, I'll discuss each question in turn.

 

Sometimes Older Is Better

But first I want to point out some of the (perceived) advantages of older ERP systems, since a significant number of businesses still run old systems for a variety of reasons:

1. Simplicity: These systems have their share of issues, but over time you have developed processes for overcoming most of the flaws. Newer systems, on the other hand, often require a series of development patches to deal with unexpected technical issues. This is probably the only true advantage a legacy system has over a newer solution.

2. Frugality: Older systems have had their costs significantly amortised and thus provide you with greater return on investment (ROI) as opposed to a newer system's high initial costs. This is often a justification for staying the course, but it's important to note that some operational costs (such as the price you pay for an excess of manual processes and their attendant errors) are often not captured in this calculation. Additionally, this argument applies mainly to on-premise installs, since software-as-a-service (SaaS) removes the consideration of heavy up-front costs.

3. User adoption: For the most part, your personnel have grown familiar with your system's operations. With a new system, retraining is often a challenge, even for businesses that thrive on a culture of change. This is especially true for businesses that have been running a particular system for so long that it is ingrained into their operational reflexes, or in the case of businesses for which any disruption in activities may have a crippling effect.

While these advantages may be valid to an extent, they may also be symptomatic of a lack of long-term perspective that is putting your business at risk. Now I’ll discuss each of these questions to help you figure out if that's the risk you're taking.

 

Do I stay with my current ERP system?

To answer this question, you will first have to answer a few more.

Are you using your system to its full capacity?

It's likely that there are more than a few people within your organization who do not have a solid handle on what your existing system can and cannot do outside their daily routine. Either they were never fully trained on it, or they saw no requirement to expand their knowledge about it. But it is often the case that unused software capabilities can help you prevent or mitigate business disruption. This is a good time to involve your vendor or experienced consultants to validate how your system could have provided support.

Does your system provide an accurate reflection of your business? 

In the past, markets were relatively kind to businesses that weren’t fine-tuned front to back, but today’s reality teaches faster and more vindictive lessons. It’s essential to periodically review all aspects of your businesses processes: conception, connection, implementation, and evaluation. Can you design new business logic within your existing system to meet your objectives? Can you connect your processes to all related areas of your system for desired visibility? Can you implement processes easily within your organization? Can you make easy translations from system logic to operations? Do you have the ability to track and evaluate your process in its execution?

As these questions suggest, it's vital that you be able to identify the existing "blind spots" within your solution. You can then evaluate the potential impact these blind spots have on your business by assessing each of your activities and the respective levels of system support they require to achieve your objectives.

But there is still one question that needs asking:

Can my system respond to my business road map and the evolution of my market?

All businesses need to revisit their business road map periodically in order to reflect changes and trends in their respective markets. You need to be able to map these trends onto the functionality that your system will be called on to provide. This is probably the single most important factor to consider if you are weighing a potential move to an upgraded or new system.

If you are dealing with an out-of-support system, this may prove problematic—your vendor may no longer be in business, or may simply not be cooperative in counselling you on your software. Other factors to consider beyond functionality include the compatibility of your current platform with other solutions on the market. While it's always possible to connect a newer solution to an older system given enough dedication and resources, the cost may sometimes be more conducive to a full replacement.

 

Do I upgrade to the next version?

If you have already concluded that you need added functionality to support your business, you’ll need to make a decision about whether to upgrade to a newer version of your system or implement a new solution. Sometimes, depending on the scope of the upgrade, it may feel as though you are buying into a new solution entirely. This is especially true if you are upgrading a solution that you have heavily customized. That's why I recommend approaching any significant upgrade with the same due diligence that you would for a new solution.

Having said that, there are some distinct advantages to upgrading versus adopting a new solution:

1. Familiarity: Having a long-standing relationship with an ERP vendor means that you are familiar with the way the vendor operates (this is also known as the "Devil you know" argument). Your vendor also has a good understanding of your organization, which will help you evaluate the complexities of an upgrade. In the event that you are running an out-of-support solution, your vendor may already have an upgrade program to help ease the transition.

2. Adoption: While vendors will always push to renew their offerings, familiar aspects of their solutions typically persist throughout the various iterations of their solutions. While some training will likely be required, a relatively friendly user interface and environment will speed adoption and the return of your operational effectiveness.

3. Cost: While there are hardware considerations to be taken into account that may play against you, such as moving over to a revamped version of your solution built on different server technology, an upgrade is often cheaper by a significant margin than a new solution. And depending on your negotiation skills, it is normally easier to obtain better prices for repeat business.

4. Stability: Even at the best of times, rolling out a new solution carries more than its fair share of technical issues as compared to upgrading a system. While there is a risk of upgrade failure, this typically does not require a complete rollback due to crippled operational execution. Implementation failures, on the other hand, are (famously) another story. In general, it is also easier to roll back an upgrade than it is to undo a new system install, especially in the case of a "big bang" install (i.e., with no active legacy system).

5. Flexibility: Most major upgrades are geared toward adding increased functionality as well as connectivity—and the latter is a strong imperative for today's business solutions. Software vendors are looking to facilitate the interoperability of their solutions, both to help their customers link to various systems and to keep their solutions relevant.

This list is not exhaustive, but it covers the main benefits you can expect from an upgrade. And depending on the extensiveness of the upgrade and your operational needs, you may be extending the life expectancy of your solutions by a few more years. This is why keeping an eye on the roadmap of your vendor in the context of your own is important. After all, you may be faced with looking at a new alternative for your needs.

Which leads to the final question:

 

Do I go with a new ERP system?

This is a question that many businesses ask with mixed feelings. On one hand, you will have to deal with a new vendor for critical aspects of your organisation—along with all the uncertainty this path brings. On the other hand, you have the opportunity of finding a solution that is able to address the challenges you are facing and the challenges to come.

There are no absolutes, but a personal anecdote has taught me that there is always a critical point where you can no longer reasonably justify keeping an older system—even in cases where the "system" is simply a personal device.

A few months ago, my father had to let go of his 20-year-old PalmPilot. He just couldn’t get the software to install on his new desktop computer (i.e., the one he had to purchase to replace the one that had just died on him). I convinced him to get an LG Windows phone, which offers great connectivity with his desktop. He still managed to complain about how expensive it was to replace everything and about all the new software. But he certainly doesn't complain about how easy contact management is for him now, and he doesn't need to be next to the computer to do it.

My point is that it makes sense to assess whether newer technology can do what you do better, at the same time freeing up the resources you're expending to continually patch things up.

While a new system may be extremely disruptive, it does offer a few significant advantages:

1. New business logic: You will find that some of the things you used to do a certain way with your old system have evolved for the better, or that it is now possible to do things you wished for but never could do, especially if you are running a very dated system. Today’s solutions have a strong focus on ease of use and configurability, which greatly increases operational effectiveness, particularly when coupled with user-configurable processes. Also, some vendors offer preconfigured version of their solutions based on industry best practices. While such preconfigured software may not prove to be an easy fit with your business, they do offer the advantage of a stable configuration that is ready to use.

2. Cost savings: Depending on your current set up and maintenance requirements, a new system may come with a higher initial cost. But in your assessment, you have to consider the total as-is costs of managing a plethora of spreadsheets, dealing with other manual processes, and resolving the other shortcomings of your system. If you factor these types of costs into your selection process, you may find that the ROI of a new system is not such a long-term consideration. In addition, software as a service may be an interesting option if you are financially limited with respect to install and maintenance costs.

3. Sustainability: Old systems have a dreadful habit of being incompatible with a lot of new technology. And if you are looking to adopt newer point solutions, you may find that you are unable to leverage the full potential of your new acquisition. Also, the older your system is, the more vulnerable to system failure you are. To make matters worse, backing up your systems for recovery purposes may be problematic if you main systems are down and you cannot secure replacement equipment.

4. Employee retention: Most businesses are looking for innovative and energetic members to join their team, and the newer generation of professionals tends to be fairly demanding of the tools they use, both in their personal and professional lives. Younger hires expect more functionality from the tools they use, particularly if they are expected to deliver results quickly. Don't give this notoriously mobile generation more justification to seek greener pastures.

On the other hand, a new system will require more training than an upgrade, and more established employees may struggle to adopt it depending on their individual acceptance of change and degree of computer savvy. Younger hires tend to be more technologically savvy, and are likely to pick up new tools more readily.  

5. Connectivity: With an out-of-date system, you may find yourself having to repeatedly build bridges to new point solutions—which likely consumes much effort for unsatisfying return on expectations. By adopting a new system with robust connective capabilities, you give yourself more flexibility to implement new functionality in the long run.

 

A Final Word

Businesses often focus too narrowly on immediate operational and budgetary considerations (as opposed to infrastructure assessments) due to immediate pressures. However, a proactive approach to periodically evaluating your IT infrastructure will help avert the need for significant crisis management (which is often too little, too late) as well as the cost of lost opportunities.

But ultimately, the way you answer these classic questions depends on your assessment of the potential threats and associated operational costs of your as-is processes versus the cost of an upgraded platform or a new ERP system.

It is also important to understand the changes that will take place if you elect to adopt a new ERP system or upgrade, as well as—on the other hand—the potentially massive cost savings inherent in using your current system to its full capacity.

 

Editor's note:

Here's some of what TEC's clients have said about this issue—as you can see, the "right" answer varies according to business context and operational requirements:

The TEC methodology and RFIs allowed us to comprehensively and objectively evaluate new systems as well as our existing legacy system. Without TEC, we might never have discovered that our legacy system had the capabilities to meet our needs, and we would have gone through needless expense selecting and implementing another solution.
— David Sobrian, Chief Executive Officer (CEO), SuperPharm Ltd.

[Read the full case study | Learn how to assess your current software capabilities]

 

Our legacy system was really built for an old business where orders were built to stock. Data was pretty static. But our business is global now and we need to have access to a single version of the truth across the company.
— Bette Ikeda, Vice President of IT, Chatsworth Products, Inc.

[Read the full case study | Find out how to make software selection easier]

 
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