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January 2016 THE HIDDEN COST OF ERP CUSTOMIZATION WHAT HAPPENS WHEN YOUR CIO IS READY FOR RETIREMENT? ARE YOU PREPARED? Some level of customization has always been quite common in implementations of business applications and Enterprise Resource Planning (ERP) is no exception. Often the result of functional gaps, these customizations are costly to maintain and can prevent you from taking advantage of innovation delivered by your solution provider, causing this gap to grow, not shrink. The older the software, the more customized it is, the more likely this is to prevent you from responding to the normal kind of change that is a constant in business. But there is nothing “normal” about the pace of change these days. The possibility of your entire business model being disrupted today makes the threat even more potent. In fact, it’s downright scary. Key Takeaways ü Customizations are costly to maintain and can prevent you from taking advantage of innovation delivered by your solution provider, causing funcitonal gaps to grow, not shrink. ü As baby boomer CIOs and experienced IT staff retire, there is nobody to pick up the ball; you don’t want to be training new hires in obsolete skills any more than they want to be learning them. ü Much of what used to require source code modifications now can be accomplished through personalization, configuration and overall extensibility without ever touching a piece of code. ü Upgrade or replace now while you still have the business expertise of your baby boomer staff. ü Outsourcing the care and feeding of your ERP can be a first step, but moving to a real software as a service (SaaS) solution can do much more to remove the cost of obsolescence from your business. The combination of time, effort and resulting cost to maintain aging,highly customized, non-‐competitive ERPs is obvious. But another issue lurking in the shadows is often overlooked: That would be the set of skills needed to keep these solutions working – skills that are obsolete. Even if your baby boomer CIO has kept his (or her) skills up-‐to-‐date, these obsolete skills are what makes him (or her) so hard to replace. As this skill set retires, there is nobody to pick up that ball and you don’t want to be training new hires in obsolete skills any more than they want to be learning them. The more highly customized these solutions are, the bigger your problem. THE PRICE YOU’VE PAID FOR CUSTOMIZATION Customization used to consistently mean mucking around in source code. That was because in the past all the logic was “programmed” into that code. This made business applications rigid and inflexible. Sure, there were always some configuration options, but those options were constrained by the logic embedded in the source code. That meant you were burdened with excessive time spent testing, maintaining and often modifying the customizations each time the software changed. As a result it is quite likely you fell behind in terms of keeping current with the innovation provided by your solution provider. Back in the days when upgrades provided only small, incremental changes and were few and far between, this was an acceptable burden. But better development tools and methodologies and advanced technologies means more and better innovation left on the table if you skip upgrades. Over the last
The Hidden Cost of ERP Customization Page 2 of 6 few years Mint Jutras Enterprise Solution Studies have kept track of the barriers preventing upgrades. Customizations consistently ranked in the top three, along with the cost and effort of upgrades in general and the potential for disruption to the business during the upgrade process. Data Source In this report, Mint Jutras references data collected from its 2015 and prior Enterprise Solution Studies, which investigated goals, challenges and status and also benchmarked performance of implementations of software that actually runs the business. In addition, we capture the overall challenges to achieving the goals of ERP. Just two years ago (in 2013), customization-‐related challenges topped that list. By 2015, this was still a problem, although our survey participants had made some progress on this front. Customization-‐related challenges had dropped to the number two spot. Why? The answer: Some had replaced old, outdated technology with next generation solutions. New business applications have come a long way in recent years. Much of what used to require source code modifications now can be accomplished through personalization, configuration and overall extensibility without ever touching a piece of code. This does not require deep technical skills and changes are carried forward as the software is enhanced. And yet there are many older solutions out there that are still constrained by outdated technology, requiring a certain (outdated) skill set to modify and maintain. The vast majority of customization still requires IT skills (Table 1). Responses are collected from companies across a broad range of industries of all sizes, ranging from very small to very large enterprises. Table 1: What does it take to customize the software you have today? Source: Mint Jutras 2015 Enterprise Solution Study
The Hidden Cost of ERP Customization Page 3 of 6 The trouble is, if the software installed is based on older technology, that’s a whole different set of skills than those being taught in schools today. The skill set needed to maintain existing customizations is rapidly becoming obsolete and who wants to acquire skills that are only marketable to those stuck in the past? The baby boomers with those skills have no one to pass them on to. You don’t want to train millennials with obsolete skills and they don’t want to learn them. As those baby boomers start to retire, those skills will be walking out the door and they are not easily replaced. Furthermore, the customizations that were originally developed to fill a functional gap are very likely having the opposite effect. If for example you are an automotive manufacturer, you may have originally purchased a general-‐ purpose ERP solution because that was the best (only?) option at the time. Since then, more features, options and entire suites of products have come on the market to specifically address automotive manufacturing needs. Even if your existing solution provider has gone this route, you are unable to take advantage of newer capabilities because of the barriers your customizations have created. That leaves you to continue to fill those gaps. Yet your core competency is not in developing business applications. You will inevitably fall behind the state-‐of-‐the-‐art commercial applications, putting you at a competitive disadvantage and exacerbating the skills gap problem. SO… WHAT DO YOU DO? If you find yourself in this situation, there are a couple of different paths you can take, but the ultimate goal should be to reduce the level of customization of your solution. The first step will be to take a hard look at the customization you have. Ask yourself why it exists. Did it result from thinking, “that’s the way we have always done it” or from prior limitations of the software? Limit customization to only that which adds real value to your business. In general, that means something that gives you a competitive advantage. UPGRADE OR REPLACE This may mean upgrading to new releases of software, if newer releases have kept up with advanced technology. Or it may mean trading in your software for a newer solution – yes the dreaded rip and replace. Replacing an existing ERP solution used to get a bad rap – lots of time, effort and dollars spent just to get back to where you started. That is simply no longer the case. New “next generation” software puts you miles ahead. And the personalization capabilities and extensibility of next generation solutions allow you to “customize” solutions without the invasive code changes required in traditional “customizations.” We asked our survey participants to characterize the type of customization they require today. Almost all the kinds of customization needed today can be
The Hidden Cost of ERP Customization Page 4 of 6 accomplished without touching source code and much can be done with little or no technical skills (Figure 1). Figure 1: Type of “Customization” Required Source: Mint Jutras 2015 Enterprise Solution Study As long as your current solution is “good enough” you may be tempted to continue to just “get by.” That thinking could get you into further trouble. You need to treat this with a sense of urgency. Make that upgrade or replace that system while you have the expertise in house. As noted in Can ERP Help Bridge the Generational Divide? baby boomers learned the business the hard way. When they entered the workforce, they had little access to technology. As a result, they know the business very well. Not only can they articulate the needs of the business, they also know how to work around systems that don’t exactly fit those needs. This is not something millennials are well versed in. Millennials take technology for granted and don’t have the same depth of business knowledge. They rely heavily on software and technology to guide them through business processes. So if you need to make a significant change (upgrade or replacement), do it now before the business expertise walks out the door with those retiring baby boomers. MOVE TO THE CLOUD If your CIO, or other IT staff intimately involved in keeping your current solutions (including customizations) up and running are due to retire soon, you might want to consider getting someone else to help you simply keep the lights on. Outsourcing the care and feeding of your ERP can be a first step, but moving to a real software as a service (SaaS) solution can do much more to
The Hidden Cost of ERP Customization Page 5 of 6 remove the cost of obsolescence from your business: not only in the hardware and operating systems, but people and skills as well. That’s not to say you want to kick those baby boomers to the curb. You want to be less dependent on their skill in obsolete technology and make more strategic use of their business expertise. Talk to your solution provider about getting some help in lifting your current solution to the cloud, but don’t stop there. You will only gain partial value from this. You also need to shift to the future – upgrading or migrating to the latest release. If your current solution provider can’t do this, consider getting a new one. Look for a solution that is easily personalized, one that is extensible. Especially if you are accustomed to a solution that was heavily customized, you will want to preserve the best of those customizations without assuming the burden of maintenance. A good, modern, technology-‐enabled ERP solution today provides both personalization and extensibility without having to modify any code. If you are accustomed to a legacy solution running on older technology, you might be assuming what you see in a demo is what you get, particularly in a multi-‐tenant SaaS solution. You may be assuming changing it is either not possible or is difficult and requires the skills of your IT staff. Both are bad assumptions and can prevent you from exploring the extent to which you can modify what you see, even in a SaaS environment, with limited or no technical skills. But just as dangerous, is assuming you can do anything and everything you want without asking the tough questions. Take a “show me” attitude and perhaps even take a test-‐drive yourself. That (the ability to test drive it) in of itself is a key advantage of a cloud-‐based solution. No need to upgrade or replace hardware or build out a data center. In fact, no capital expenditure is required at all. Keep that capital and use it to grow your business. SUMMARY AND KEY TAKE-‐AWAYS Aging, heavily customized, non-‐competitive ERP solutions may be costing you more than you realize. The out-‐of-‐pocket costs to maintain customizations are only a small piece of the overall price you pay. Customizations build in barriers to taking advantage of innovation delivered by your solution provider. The older the software, the more likely it is to prevent you from responding to the ever-‐accelerating pace of change. The functional gaps the customization was intended to fill have the potential of growing wider. At the same time, the skills needed to maintain those customizations are becoming obsolete. As baby boomers get set to retire, they have nobody with
The Hidden Cost of ERP Customization Page 6 of 6 that same skill set to pass the ball to. You don't want to be training new hires with old, obsolete skills any more than they want to be learning them. As the baby boomer generation is planning to retire, you need to be planning to retire those customizations. That might be accomplished through upgrades, if your current solution provider has indeed kept up with the latest technology. Or it might mean replacing them. In either case, consider the advantages of the cloud. The first step may simply be to lift current solutions to the cloud in order to get some help in just keeping the lights on. But consider that only as a first step. Moving to a new, technology-‐enabled SaaS solution that is extensible and easily personalized can provide much more: more and better functionality, with a better, more customized user experience. If members of your IT staff, who you depend on today, are getting ready for retirement, before they go, tap into their vast expertise to help you in that transition. Meet your needs now and well into the future with a next generation solution that is easy to personalize, configure and extend. And then, wish them well to enjoy a long and happy retirement. About the author: Cindy Jutras is a widely recognized expert in analyzing the impact of enterprise applications on business performance. Utilizing over 40 years of corporate experience and specific expertise in manufacturing, supply chain, customer service and business performance management, Cindy has spent the past 10 years benchmarking the performance of software solutions in the context of the business benefits of technology. In 2011 Cindy founded Mint Jutras LLC (www.mintjutras.com), specializing in analyzing and communicating the business value enterprise applications bring to the enterprise.
