Many legacy enterprise resource planning (ERP) products like Sage, Epicor, Oracle, and Microsoft Dynamics require expensive maintenance fees ranging from 16 to 24 percent of the full product price. Support and the right to future software releases are generally included in these fees. However, most legacy ERP systems have been customized, which translates into a centralized support representative who does not know how your system is configured or setup. Generally, a company either must maintain expertise on staff or maintain a relationship with a third party implementer. In most cases the third party implementer is going to charge for support assistance. The maintenance fee also guarantees the organization a right to future releases of the software. This guarantee has traditionally been a positive aspect of maintenance fees. However if the software vendor is no longer delivering new features and functionality for that product to help the business, why would you ever upgrade? An organization may be forced to upgrade due to technology enhancements such as new laptops with Windows 10 or a Windows Server version that is no longer supported. Lots of businesses pay for expensive upgrades due to technological changes yet receive no benefits from the investment. For many legacy ERP systems, the cost of an upgrade is as much or more expensive than implementing a new, flexible, cloud-based system.
So why should an organization pay legacy maintenance fees to a vendor when no benefit is being derived from the payment? It shouldn’t. As a consulting firm, we at Kraft Enterprise Systems have sold and supported many legacy systems in our 20 years in business. If an ERP vendor is not moving toward a public cloud approach with built-in data redundancy, disaster recovery and upgrades, then the solution is likely to milk its customers dry via maintenance fees while delivering few new benefits to its customers.
Recently one of my favorite technical analysts (Brian Sommer) wrote an article regarding IT technical debt in legacy ERP solutions. IT “technical debt” is the cost and time associated with bringing an application to its current version or state. For a legacy ERP, this process can be a substantial challenge involving multiple departments including IT, finance, and operations. These endeavors are costly and generally realize little benefit.
The article compares IT technical debt to what Sommer calls “cloud functionality debt” (CFD). CFD is the debt an organization has by not adopting new features as they are created from cloud ERP vendors. With cloud ERP solutions, new features are delivered with every release to ensure the application is kept on the latest version multiple times per year. Organizations should be evaluating the new features and functionality within their system to ensure it is used to the greatest potential.
In looking at the business case for comparing these two “debts,” it certainly seems that businesses would rather have the ability to adopt new functionality which is introduced from a cloud-based vendor versus paying extensively for updates every few years which may or may not deliver any value. Sommer suggests that vendors and implementers like the cloud functionality debt as it is an opportunity for new consulting engagements. In my experience, deploying new features in cloud ERP is much less expensive than upgrades (especially when the legacy product is highly customized). While upgrades can be a good revenue stream for software implementers, these necessary projects are not fun for implementers either, especially when there are few benefits gained. As a business partner, we focus on delivering value and new functionality to our clients. Upgrades that provide neither of those things are not the basis for our business.
In summation, it is time for businesses to evaluate their future and understand the value that a true cloud system can deliver. Many legacy vendors are touting “cloud” these days, but, generally it is just a hosting or managed services agreement. When legacy vendors move to the cloud, issues often arise around interoperability of systems, integrations with other products and general usability concerns which are not always addressed. At Kraft, we represent NetSuite ERP, the world’s largest cloud ERP vendor. We believe in deploying solutions which allow our customers to focus on their business, and we support them as they evolve. Contact us to chat and learn how we can partner together for your business future.