ERP: How and Why You Need to Manage It Differently
Enterprise Resource Planning has become a legacy system. That means simpler implementation, reduced maintenance costs and integrating new technologies.
CIO — Kennametal (KMT), a $2 billion maker of construction tools, has spent $10 million on ERP maintenance contracts during the past 13 years and not once could the company take advantage of upgrades, says CIO Steve Hanna. The company's implementation was too customized: The time and effort needed to tweak and test the upgrade outweighed any benefits, he says. But Hanna kept trying. Late last year, he priced the cost of consultants to help with an ERP re-implementation and was shocked by estimates ranging from $15 million up to $54 million.
The major ERP suites are "old and not as flexible as some newer stuff, and they can't build flexibility in," Hanna says. "Modifying it takes our time and money and training." His ears practically steam from frustration. "You tell me: What am I missing here?"
Kennametal is like many companies when it comes to ERP. The software is essential, but unlike when it was new, it now offers scant opportunity for a business to set itself apart from its competition. It certainly doesn't help bring in new revenue. And running it eats up an increasing share of the IT budget. Yet longtime ERP users aren't pitching the technology. Companies still need it for managing supply chain, financial and employee data.
Read more about ERP: A New Source of ERP Value and Why ERP Systems Are More Important Than Ever.
As Hanna and other CIOs are finding, however, behemoth ERP systems are inflexible. Meanwhile, high-priced maintenance plans and vendors' slowness to support new technologies such as mobile and cloud computing mean that without careful management, the ERP technology woven through your company can become a liability.
Your ERP system probably won't collapse if you do nothing; it's not like legacy mainframe applications were a decade ago. But just as you had to adapt your approach to managing mainframes in order to maintain their value in an age of faster, cheaper Web-based apps, you now need to do the same with ERP. And so it's time to rethink business processes, drive a harder bargain on maintenance fees and find ways to marry ERP to emerging technologies. Achieving an ERP system that delivers future value means managing it differently here and now.
The New Legacy System
New ERP license revenue dropped last year by about 24 percent, according to Forrester Research—one effect of the general decline in software spending during 2009. This means vendors enter 2010 hungry for new business. They'll offer software deals to tempt CIOs who had put off upgrades or who want to install completely new systems to get the latest capabilities.
