Digital transformation, driven by the Platform Economy, is highlighting the importance of technology. It’s forcing companies to rethink their technology strategies and re-evaluate their legacy systems, especially the system that is arguably the most important to any business – Enterprise Resource Planning (ERP).
Previously, we discussed how the Platform Economy has grown at an exponential rate, driven largely by the power of ecosystems, the scale of network effects and the innovative use of technology. We also discussed the role and value of Open Platforms as business system enablers in the Platform Economy.
In this article we’ll focus on the changing role of ERP systems in the Platform Economy, and why you need to build a business case for ERP system renewal for your new platform strategy.
Modern ERP integrates new business-enabling technologies
Moving to a new ERP platform can enable businesses to integrate a variety of ground-breaking technologies, and drive new sources of business value.
These new technologies can be readily integrated when ERP systems are based on Open Platform principles:
- With Blockchain, organisations can enable smarter, more trusted interactions with partner organisations and suppliers.
- The Internet of Things (IoT) can bring unprecedented amounts of data into enterprise systems, enabling higher levels of insight and better decisions.
- With robotic process automation (RPA) organisations can remove the need for employees to perform time-consuming, error-prone manual tasks. This frees employees to focus on high-value tasks that drive greater business performance and higher customer satisfaction.
Cloud readiness brings agility and savings to ERP
Businesses rely on their ERP systems to run their operations and manage their finances, but the technology that was used to build many of these systems is over 20 years old. Managing these legacy systems is costly and results in tighter IT budgets, and that puts the more innovative IT projects on hold.
Modern Cloud ERP systems are using new technologies and designs, and give users a much more intuitive and friendly interface. That means more productivity, less user resistance and better feature adoption rates.
The latest evolution in ERP brings Cloud support, with sweeping changes to the way that these systems are deployed and maintained. Cloud ERP can be up and running much quicker than ever before.
Regular releases of new versions can be applied quickly and painlessly, ensuring a steady flow of new features and maintenance fixes, while security vulnerabilities are constantly fixed. This shifts the day-to-day focus on the ERP system from support and maintenance, to innovation and testing.
However, the biggest change may have more to do with the costs of owning and operating ERP systems. Apart from the innovative billing models that we’re seeing for Cloud ERP, the use of Cloud technology means that you can use Platform as a Service or Infrastructure as a Service to rapidly deploy and scale up hardware.
Now, instead of spending money up-front in computer hardware that becomes obsolete overnight, those funds can be put to good use elsewhere.
With APIs, ERP now becomes an Open Platform
You can think of using an API as you would use a USB cable. Without requiring you to understand the complex technicalities, it allows you to connect “things” across different platforms and brands. To upload your photos, you plug your iPhone into your Windows laptop. Simple.
The modern ERP system’s Application Program Interfaces (APIs) perform in a similar way. They enable you to connect different hosts and systems to each other, and move information in real-time without needing heavy coding or an in-depth knowledge of those systems.
The ability to connect your ERP system seamlessly with other systems, including those belonging to partners and customers, enables you to:
- Connect multiple or dissimilar ERP systems inside your organisation
- Connect your ERP system to other enterprise business systems
- Connect your ERP system to your customers and suppliers
The business case for migrating to next-generation ERP
Funding is the biggest challenge in migrating from an outdated ERP system to a new system that can support your platform business model.
That’s why it’s important to develop the business case properly, and early. The business case will help you to identify:
Costs – The costs of your current system, or Total Cost of Ownership (TCO), can “creep” in unexpected ways. A proper analysis will highlight the actual costs. These costs can then be compared to the anticipated costs of a new system implementation.
Because Cloud systems avoid certain Capex costs (such as servers and storage), you may discover that the setup costs are lower than first imagined.
Tangible business benefits – With a little effort and a good business case template you can put together a list of enterprise-wide business benefits, with the associated cost savings or revenue-generating opportunities.
Intangible business benefits – Don’t discard intangible benefits because they can’t be quantified. Any CEO would agree that “increasing competitive advantage” is a highly desirable benefit, even though it’s intangible.
The most important thing about tangible and intangible business benefits is this:
Every identified benefit must align with a stated objective in your platform model business plan.
For example: If you identify a benefit such as “Reduce customer churn by x% in Year 1” but there’s no corresponding goal in your new business plan, then nobody will track that metric (or even care about it, for that matter).
ERP systems have come a long way since they first saw the light of day in the 1980s, and today they’ve become an essential part of every company’s ability to execute on its business strategy.
When you develop your Platform Economy business strategy, you’ll need to review your systems (and especially ERP) to ensure that they’ll support your intended business model.
A good way to ensure that your new ERP system delivers value is to create a thorough business case. This will help you to identify the true costs and business value of all the intended options, and also help you to identify the one key metric that is so often overlooked in assessing ERP solutions:
The real cost of doing nothing
In the next article:
Winning in the Platform Economy – Part 3: Traditional business fights back.
How a traditional value chain business migrated to become a platform business and successfully reinvented the business.