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Issue 22

Switching Software: ROI in action

The argument for switching ERP software - replace or maintain?

Yellow floppy disk

Research indicates that organisations in New Zealand replace their ERP system, on average, once every seven years.

The reasons why organisations do this are an interesting study into the lifecycle of enterprise software, and the myriad reasons why it can sometimes make more sense to replace an application in its entirety rather than continue to keep an existing application going.

Of course, there are other reasons why organisations can make a change – getting access to better functionality is an obvious example – but the reasons we outline here are predominantly economic.
Seven years is a long time in anyone’s terms, let alone in the fast-moving software industry. But elapsed time alone isn’t a reason to make a change – as the saying goes, “if it ain’t broke, don’t fix it.”

That said, there are a number of more quantifiable reasons for switching your ERP system:

  • Obsolescence. The company they purchased the system from has been taken over and no longer exists. As a result, product development has stopped and customers have no choice but to move to new platforms.
  • Maintenance Fees. Maintenance charges could have increased every year – and some such fees grow by 4-8%. Over a seven year period, such grow could mean an increase in maintenance charges of over 50% from the original purchase price.
  • Custom Applications. For various reasons (including cost, the inflexibility of the current system, or a business requirement not being supported in the application) additional internal business applications may have been developed outside of the core ERP application. This can add risks to the business, both in terms of day-to-day management but also in terms of long-term support.
  • Evolution. During the period, the organisation’s core business and its priorities may have evolved, such as through expansion into new products or markets, but the ERP system isn’t sufficiently flexible to accommodate those changes, adding risk to the organisation.
  • Business Intelligence. Significant amounts of valuable data now resides in the system but it is difficult to gain access to the data, meaning organisations are unable to fully measure performance or gain insights into the running of the business.
  • Staff Changes. The original staff who implemented the system may have left the organisation, and none of the current staff understand it anymore. The challenges of replacing those people could be compounded if the system is obsolete.

 

Any organisation that has been around for more than a few years could recognise one of more of these symptoms. If so, the key question is: do you upgrade the existing system, or do you replace it?

The response to this question is dependent on cost: it can be difficult to quantify the implications of taking either option. In working with dozens of organisations, Intergen has found that by helping organisations calculate and understand the cost of these options, the decision-making process becomes clearer – both now and the long-term. For one customer, we observed a situation where license maintenance costs of been reduced by two thirds by implementing Microsoft Dynamics, with the savings on maintenance alone, when compared to the previous system, funding the total cost of implementation.

Every organisation is different, and we encourage organisations who have got the “seven year switch” on their mind to consider the true cost of running their existing applications.