ERP systems have long been instrumental in integrating business activities across functional departments and improving operations. Before the dawn of flexible web-based ERP systems like NetSuite, most organizations with on-premise systems were (and still are) forced to invest in expensive and extensive customizations to fill gaps in business requirements, address specific business processes, and achieve competitive differentiation.
While customizing an ERP is less expensive than building one from scratch, development and deployment do consume significant time, IT resources, and budget. Moreover, customizations of legacy systems are known to break during upgrades to a newer version, forcing companies to painfully redeploy custom code on the newer version. Other organizations postpone upgrades indefinitely, becoming stuck in a vicious cycle of “ERP version-lock.”
What is ERP Version-Lock?
ERP version-lock occurs when a version of an ERP application has been customized so much that it is no longer practical to upgrade to a newer version due to the high risk that those customizations will break, or become incompatible, in the process. Because on-premise ERP customizations are critical to the business, yet do not automatically migrate to the upgraded version, it dramatically increases the cost and complexity of upgrades. The only way to migrate these customizations is to recode them from scratch, costing time, money, and resources, and can often be unstable. As a result, companies are simply locked into an older version of their software and are unable to fully deploy a newer version across their enterprise.
According to Forrester research, approximately half of companies are two versions behind the most current release, meaning they may be running technology that’s at least several years old. With the way business is run today, that puts these businesses at a huge disadvantage—especially to competitors who are staying on top of the latest technological advancements. As NetSuite states, “By opting to run on outdated on-premise ERP software, these enterprises have essentially decided to slow down their ability to keep up with changing business requirements.”
Let’s take a look at the four biggest impacts ERP version-lock can have on your business:
1. Prevents Innovation
Gone are the days of IT solely being in charge of an organization’s hardware and software. More than ever, IT should be a critical component of a business’s overall strategy and work side-by-side with every department to streamline processes and operations. But when running an out-of-date ERP, IT resources are typically overloaded with reactive tasks such as troubleshooting, fixes, and managing support tickets—leaving no time for innovation. And when companies don’t innovate, they often don’t stick around to tell the tale.
2. Failure to Stay (Easily) Compliant
When it comes to staying compliant, keeping up-to-date with technology is especially important in the financial/accounting space. If your ERP automates processes such as revenue recognition, for example, running an outdated system will prevent you from complying with the most recent standards like ASC 606 or IFRS 15. Failure to comply with standards such as these will have serious implications throughout the business.
3. Discourages a Distributed Workforce
Running an outdated, on-premise, version-locked ERP can not only have serious effects on how you conduct business, but who you get to work for you. Think about it this way: why limit yourself to the talent in your immediate geographic area when you could have access to the best-of-the-best—anywhere? But to do that, you need to have a decentralized, accessible software stack that allows employees to do work any time, from anywhere.
4. Lack of Real-Time Information
To compete, businesses need modern ERP software with modern business intelligence and analytics tools. Real-time, up-to-date, and unified business data is critical for success. Employees should have access to role-based KPIs, drill-down capabilities, and make smarter, more informed decisions. As CFO.com explains, “use cases now encompass a wide range of corporate goals, from boosting product quality to deploying workers efficiently to re-engaging customers who appear headed for the arms of a competitor.” Basically, you can’t afford to not have access to real-time data.
Unlock Success with Flexible Cloud ERP
With the growth of the cloud, businesses must take a strategic and long-term view of their application footprint—understand how applications and business processes affect different departments and lines of business and optimize their applications architecture around collaboration and process. By combining an integrated application strategy with cloud delivery, businesses can position themselves for efficient and cost-effective growth, and improved competitiveness. In particular, SMB companies are realizing that the economics of accessing upgraded technology now makes sense in the world of SaaS.
Cloud-based ERP has led to a paradigm shift in the way enterprises are managing, upgrading, and customizing their systems—with companies turning to mature, standards-based platforms to help manage their multi-company, multinational organizations with greater agility and at lower costs.
Cloud ERP enables rapid customization through a variety of methods ranging from graphical customization to workflow re-engineering and has the potential to free businesses from the burden of version-lock and costly ongoing maintenance projects. Provided these cloud applications are architected from the ground up and have a mature, flexible platform that future-proofs any customizations, the potential is unlimited. With cloud-based ERP, companies can develop new functionality in a matter of weeks instead of months or years, and carry over all customizations seamlessly to the latest release of the application. Moreover, this technology has delivered higher ROI, increased collaboration, and greater confidence in systems and their business value to many adopters.
Ready to learn more? See now NetSuite—the world’s leading (and most flexible) cloud ERP solution—can help you “unlock” success.