Staying with a legacy ERP system may be the right decision for a company, but many organizations must modernize their legacy ERP to stay competitive in their industry. Picking the right approach is important because legacy ERP modernization demands far more than a few minor upgrades.
Companies should evaluate whether a big overhaul is worth the business disruption and what aspect of their legacy ERP most needs improvement. Considering the modernization costs is also important.
Here's a look at the five "Rs" of modernizing a legacy ERP system and how to decide on the right approach.
The five "R"s of legacy ERP modernization
Gartner has defined five legacy ERP modernization approaches, known as "the five Rs." These strategies include the following:
A company that has outgrown their existing ERP and is seeing performance start to suffer can consider moving its ERP system into another infrastructure, such as a new server or cloud service provider, to gain more processing power, faster storage and better networking. For a shift to cloud, the service provider may be a private or public cloud environment that provides infrastructure flexibility.
Rehosting also includes upgrading only the hardware or software of the back-end database engine that stores the ERP data. This can improve system performance.
Replatforming is another option for companies looking to modernize their legacy ERP. For this process, a company moves to a different runtime platform.
Refactoring an ERP system involves evaluating and optimizing ERP processes and customizations. This approach requires an internal committee of business analysts, IT staff, subject matter experts and other business leaders. The committee evaluates the ERP system and recommends changes that will increase efficiency and improve overall operations.
For example, if a company's clients submit orders via email and employees enter the order information into the ERP system manually, company leaders may decide to integrate a web portal where customers input order information directly. This could reduce errors.
Rearchitecting is adding third-party apps to gain functionality that the legacy ERP lacks, which could potentially solve business issues.
For example, a company may want to eliminate duplicate data entry between the current ERP and their supplier's system. One potential fix is to adopt an electronic data interchange that can provide a way to automatically exchange data such as orders, invoices and delivery confirmations, which reduces duplication.
As with refactoring, the rebuilding approach includes a committee reviewing and attempting to optimize existing processes. However, for this strategy, the committee considers rebuilding some of the existing business processes, including potentially starting from scratch. The committee may add new tools to the mix or change staff responsibilities.
For example, a committee may define the current workflows for invoicing, either on a whiteboard or virtually, then evaluate each step and look for redundancies or areas to automate and streamline.
The replace strategy refers to eliminating some of the legacy ERP system components that are ineffective and don't meet business requirements. Manufacturing resource planning, warehouse management systems and production scheduling are a few ERP components that organizations often find difficult to use or inadequate for business needs.
A company pursuing the replace strategy may decide to adopt a third-party WMS that ties into their existing ERP platform.
Selecting the right legacy ERP modernization approach
Certain factors are particularly important to consider when selecting a legacy ERP modernization approach. Here's what company leaders should keep in mind:
Each modernization approach carries a different level of risk. Companies that want a low level of risk should choose rehosting and refactoring. The two approaches provide the least amount of disruption to existing business processes and focus on optimizing the infrastructure and existing ERP processes.
A company experiencing severe issues with inefficient processes and workflows should pursue the rebuild or replace approaches, because they can result in major improvements. However, those approaches require a much higher risk tolerance.
Legacy ERP modernization can demand different types of costs, with some requiring monetary funds and others demanding human capital. For example, refactoring and rebuilding both include committees that evaluate the best way forward.
Companies must evaluate whether they can afford the cost of a particular legacy ERP modernization approach.