by Thomas Wailgum

ERP Application Consolidation: When It’s Time to Cut

Mar 22, 2010
Data CenterEnterprise ApplicationsERP Systems

Consolidating ERP apps can be an unpopular strategy -- it's expensive and difficult. But a Forrester Research case study of one company's travails offers insights into why such consolidation might be absolutely necessary.

Remember Aron Ralston? He was the mountain climber who, back in 2003, was forced to cut off his own arm, which was trapped under a boulder, to save his life. Ralston had recklessly hiked alone and neglected to tell anyone where he was headed. His grave six-day ordeal was extraordinary and captivating.

Who among us would have the will to sever one’s own arm to free oneself from a deteriorating and deadly situation?

Today, many enterprises find themselves in an analogous situation: They’re trapped under the suffocating weight of too many applications—some that are siloed, some that play nicely with others, and some that are…well, no one knows exactly what that app is for, who is using it or why it was purchased in the first place.

Like Ralston, companies have been reckless over the years, following a “more apps are better” strategy. The result: application bloat, wasted corporate dollars and potential compliance crises.

[ Read how the New Normal could kill IT |’s 5 Reasons Businesses Hate Enterprise Software ]

These are some of the lessons within a new Forrester Research report: “Loss of Historical Financial Data Triggered This Application Consolidation Program.” In it, principal analyst Phil Murphy uses the case study of an energy company (he doesn’t name) to illustrate just how foolhardy and dangerous it is for companies to ignore application-consolidation measures.

“Bloated application portfolios are a severe tax on the very resources that would otherwise enable new projects and innovation,” Murphy writes. “Bloat consumes hardware and software maintenance dollars, is a multiplier on every technology upgrade, and subjects firms to excess business risk, as one energy company discovered the hard way.”

The Snowball Effect

The energy utility’s story starts off with the director of applications standing before the CFO, attempting to explain why two years’ worth of production data had been lost, according to Murphy.

In short, here’s what happened: A prior IT administration had wanted to save time and money during an ERP rollout and allowed the previous ERP app to keep running in “inquiry mode,” to ensure that business users would still have access to the financial and other administrative data. The project manager saved time on the new ERP implementation (hero!) but also opened the company up to the disaster it now had on its hands (zero!). Murphy observes: A bad precedent was set. (The road to hell, after all, is paved with the best intentions.)

The myopic IT strategy soon created a “proliferation of inquiry-only applications” that, in turn, created “ERP sprawl.” Each succeeding ERP upgrade snowballed, adding more “inquiry-only” business applications.

“Over time, the problem mushroomed to the point where the company had several unsupported ERP releases from multiple vendors in addition to the new system of record,” Murphy writes. “It also had several custom-built ERP and financial applications acquired via merger. The result was ERP sprawl: The company was running and maintaining literally dozens of ERP applications—many for the sole purpose of occasional inquiry against historical data.”

Complexity soon riddled the company’s financial systems and set the stage for the ultimate data-loss event. At one point, IT deep-sixed one ERP application that had not been accessed in months. “The purge went unnoticed until the CFO needed some historical data to develop a tax analysis and found that two years of data were missing,” Murphy writes.

The purge might be viewed as a beneficial event. But the data loss actually meant the company was in noncompliance with several regulatory agencies—such as the Securities and Exchange Commission and Nuclear Regulatory Commission—and also put the firm in violation of the Sarbanes-Oxley Act, states the Forrester report.

This put the most senior-level executives in a precarious spot, Murphy writes, since they are the ones ultimately responsible for the corporate financial data. One can only imagine how those conversations went down.

What’s the ROI?

The director of applications quickly developed an “application-consolidation program that would eliminate the redundant applications and consolidate the financial data into a reliable archival and retrieval vehicle,” Murphy writes.

Ultimately, he adds, the utility spent more than $2 million on the “people, hardware, software and other resources to dismantle a situation that stemmed from a myopic decision made years prior.”

For its $2 million, the company received these returns, according to the Forrester report:

1. It eliminated a serious business risk by retiring many obsolete ERP packages; in fact, the company ditched 30 applications as a result of the consolidation effort. (That can save serious cash on maintenance costs.)

2. It increased enterprise confidence in its financial data and reporting. “Executives have a fiduciary responsibility to shareholders, financial institutions and employees,” Murphy writes. “In this case, one could argue that the loss of data breached that fiduciary duty, putting the interests of investors and all stakeholders at increased risk.”

3. It created a data-archiving environment that is free of proprietary vendor restrictions, Murphy points out. “Some of the ERP packages held data in proprietary formats that were difficult to access outside of the application,” he writes. “The firm now has a single archival repository and simplified access to data that can be pulled into the firm’s BI tool for aggregate reporting—enabling robust reporting and advanced analytics.”

4. It started a thorough data-retention program. “The firm can now respond to auditor requests for information in a timely manner as well as produce consistent reporting across all of its data in formats that are ready for audit,” Murphy writes. In fact, he adds, the utility passed its Sarbanes-Oxley audit and “enjoys increased credibility with all of its governing regulatory agencies.”

Murphy is under no illusion about the probability of selling an expensive application-consolidation project right now. “Spend money to decommission applications?” he asks. “That seems counterintuitive when the business perceives that it needs more, not fewer, applications.”

But business and IT leaders are going to have to think like Aron Ralston did: This is going to get worse before it gets better.

But it is going to get better.

So, are you ready to cut?

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