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Hidden costs of ERP Customization

Hidden Costs

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Hidden costs of ERP Customization

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  1.               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    

  2. 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  

  3. 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    

  4. 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    

  5. 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    

  6. 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.      

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